Himachal Pradesh Road Sector Finance Study
Final Assessment Report
PwC
December 2006
Table of Contents
1 INTRODUCTION ...... 6 1.1 ASSIGNMENT BACKGROUND ...... 6 1.2 ASSIGNMENT GOALS AND OBJECTIVES ...... 6 1.3 STRUCTURE OF THE ASSESSMENT REPORT ...... 7 2 OVERVIEW OF ROAD NETWORK AND INSTITUTIONAL STRUCTURE...... 8 2.1 IMPORTANCE OF ROAD NETWORK FOR THE STATE ...... 8 2.2 ROAD NETWORK OVERVIEW ...... 8 2.3 PROGRESS IN ROAD CONNECTIVITY ...... 10 2.4 INSTITUTIONAL OVERVIEW ...... 11 3 CURRENT ROAD SECTOR FINANCING ...... 13 3.1 OVERVIEW ...... 13 3.2 EXISTING ROAD SECTOR FINANCING ...... 13 3.3 ALLOCATION AND EXPENDITURE FOR THE ROAD SECTOR ...... 14 3.4 ALLOCATION & EXPENDITURE ON NH, SH AND RURAL ROADS ...... 15 3.5 ALLOCATION AND EXPENDITURE BY TYPE OF WORKS ...... 17 3.6 EXPENDITURE ON ROADS : BY CATEGORY OF ROAD NETWORK ...... 20 3.7 SOURCES OF FUNDS ...... 22 3.8 KEY ISSUES ...... 25 4 ASSESSMENT OF ROAD USER CHARGES AND TAXES...... 27 4.1 OVERVIEW ...... 27 4.2 TYPES AND OBJECTIVES OF EXISTING ROAD USER CHARGES ...... 27 4.3 CLASSIFICATION OF ROAD USER CHARGES ...... 29 4.4 THE TOTAL ROAD USER CHARGES COLLECTION ...... 30 4.5 CONTRIBUTION TO ROAD USER CHARGES BY EACH VEHICLE TYPE ...... 31 4.6 ANALYSIS OF THE ROAD USER CHARGE REGIME ...... 33 4.7 ROAD USER CHARGES PAID BY NON ROAD USERS ...... 35 4.8 ROAD USER CHARGES RETURNED TO THE SECTOR ...... 36 4.9 CORRELATION BETWEEN ROAD USER CHARGES AND ROAD EXPENDITURE ...... 37 4.10 KEY FINDINGS ...... 39 5 FUTURE FUND REQUIREMENTS ...... 41 5.1 NEED FOR FINANCE ...... 41 5.2 MAINTENANCE REQUIREMENTS ...... 42 5.3 CONSTRUCTION /U PGRADATION REQUIREMENTS OF SH/MDR S ...... 45 5.4 CONSTRUCTION /U PGRADATION OF RURAL ROADS : ...... 47 5.5 ADMINISTRATIVE EXPENDITURE REQUIREMENTS ...... 48 5.6 OVERALL FUNDING REQUIREMENTS FOR CONSTRUCTION /U PGRADATION AND MAINTENANCE OF SH/MDR S & RURAL ROADS : ...... 49 6 POTENTIAL SOURCES OF FUNDS ...... 51 6.1 PROJECTED AVAILABILITY OF FUNDS FROM EXISTING SOURCES ...... 51 6.2 ROAD USER CHARGES AS A POTENTIAL SOURCE OF FUNDS ...... 52 6.3 POLICY FRAMEWORKS TO PROMOTE ROAD SECTOR DEVELOPMENT ...... 54 7 GAP ANALYSIS ...... 56 7.1 PROJECTED FUNDING GAP FROM EXISTING SOURCES ...... 56 7.2 PROJECTED FUNDING GAP FROM FUNDING THROUGH ROAD USER CHARGES ...... 56 7.3 COMBINATION OF ROAD USER CHARGES AND EXISTING SOURCES ...... 57 7.4 KEY ISSUES ...... 58 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
8 KEY ISSUES AND WAY FORWARD ...... 59 8.1 LOW CURRENT EMPHASIS ON STATE HIGHWAY NETWORK AND NEEDS ...... 59 8.2 DEDICATED AND DIRECTED FUNDING FOR SPECIFIC REQUIREMENTS ...... 59 8.3 HUGE FUNDING GAP ...... 59 8.4 LACK OF SUSTAINABLE SOURCE OF FUNDING ...... 59 8.5 LIMITED FLEXIBILITY OF ALLOCATION FOR THE ROAD SECTOR ...... 60 8.6 NEED FOR ALTERNATIVE FINANCING SOURCES ...... 61 8.7 NEED FOR ALTERNATIVE MODELS FOR DEVELOPMENT AND FINANCING OF THE NETWORK - PPP S 61 8.8 WAY FORWARD ...... 61 ANNEXURE A: LIST OF PEOPLE MET ...... 63 ANNEXURE B: OVERALL STATE FINANCIAL RESOURCES ...... 64 ANNEXURE C: FUEL CONSUMPTION ...... 65 ANNEXURE D: RATES OF TAXES ON VEHICLES ...... 66
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List of Exhibits
Exhibit 1: Category-wise Road Network in HP as on November 2006 (in kms.) ...... 8 Exhibit 2: Total Vehicle Population (Registered Vehicles) ...... 10 Exhibit 3: Status of Connectivity ...... 10 Exhibit 4: Total Fund Allocations & Actual Expenditure (Rs. Crores) ...... 14 Exhibit 5: Overall Utilization of Funds (Expenditure as a %age of Total Allocation) ...... 15 Exhibit 6: Allocation of funds for NH, SH and Rural Roads for various years ...... 15 Exhibit 7: Actual Expenditure on NH, SH and Rural Roads for the past 5-years ...... 16 Exhibit 8: Percent Utilization of Funds by Category of Roads ...... 16 Exhibit 9: Allocation of Funds by Type of Works (in Rs. Crores) ...... 18 Exhibit 10: Actual Expenditure on Roads by type of works (in Rs. Crores) ...... 18 Exhibit 11: Maintenance Expenditure by Type of Maintenance ...... 19 Exhibit 12: Expenditure on Rural Roads ...... 20 Exhibit 13: Expenditure on State Highways ...... 21 Exhibit 14: Expenditure on National Highways ...... 22 Exhibit 15: Sources of Funds (in Rs. Crores) ...... 23 Exhibit 16: Break up of Consolidated Funds of the state (Rs.Crore) ...... 23 Exhibit 17: Sources of resource generation & their objectives ...... 23 Exhibit 18: Sources of Funds- trends for the past 5-years ...... 24 Exhibit 19: Percent Share of Sources of Funds ...... 24 Exhibit 20: External Sources as a % Total Funding ...... 25 Exhibit 21: Different charges levied on “Road Users” in the State ...... 27 Exhibit 22: Objective and Frequency of Incidence of Road User Charges ...... 28 Exhibit 23: Implicit and Explicit Charges ...... 30 Exhibit 24: Total Road User Charges Composition ...... 30 Exhibit 25: Vehicles Distribution in Himachal Pradesh (2003) ...... 32 Exhibit 26: Charges paid by Road Users (2005-06) (Rs.Crores) ...... 32 Exhibit 27: Taxes Paid by each Vehicle Types ...... 33 Exhibit 28: Type of Road User Charges ...... 34 Exhibit 29: Diesel Consumption by Non Road Users for HP ...... 35 Exhibit 30: Total Charges contributed by non-users of road ...... 35 Exhibit 31: Road User Charges returned to the road sector (Scenario 1) ...... 36 Exhibit 32: Road User Charges returned to the road sector (Scenario 2) ...... 37 Exhibit 33: Trend of road user charges and expenditure on road sector ...... 37 Exhibit 34: Relationship between road user charges and expenditure ...... 38 Exhibit 35: State-wise diesel and petrol sales tax rate (Percentage) - 2005-06 ...... 40 Exhibit 36: Revenue Leakages ...... 40 Exhibit 37: Periodic Maintenance Requirements (2006-16) ...... 43 Exhibit 38: Routine Maintenance Requirements (2006-16) ...... 44 Exhibit 39: Total Maintenance Requirements (2006-16) ...... 45 Exhibit 40: Total Funding Requirements – SH/MDRs (2006-16) ...... 49 Exhibit 41: Total Funding Requirements – Rural Roads (2006-16) ...... 49 Exhibit 42: Total Funding Requirements – All Roads (2006-16) ...... 50 Exhibit 43: Availability of Fund for the Road Sector (2006-16) ...... 51 Exhibit 44: Correlation between road user charges and vehicle ...... 52 Exhibit 45: Projected Vehicle Ownership ...... 53 Exhibit 46: Projected Road User Charges (2006-16) (Rs. Crores) ...... 54 Exhibit 47: Expected Funding Gap (2006-16) ...... 56 Exhibit 48: Road User Charges as a % of Total Expenditure ...... 56 Exhibit 49: Expected Funding Gap using Road User Charges (2006-16) ...... 57 Exhibit 50: Funding Gap through combination of Sources (2006-16) ...... 57 Exhibit 51: Funding Gap for Maintenance for the time frame 2006-16 ...... 58 Exhibit 52: Debt/GSDP Ratio – Comparison of Indian States ...... 60 Exhibit 53: Allocation of Funds to State Sector ...... 61
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Abbreviations
HP- PWD Himachal Pradesh Public Works Department RIDF Rural Infrastructure Development Fund CRF Central Road Fund PMGSY Pradhan Mantri Gram Sadak Yojana NABARD National Bank for Agriculture and Rural Development B.A.S.P. Backward Area Special Plan T.S.P Tribal Special Plan NH National Highways SH State Highways MDRs Major District Roads GoI Government of India MoSRTH Ministry of Shipping, Roads Transport and Highways- GoI MoRD Ministry of Rural Development TFC Twelfth Finance Commission WB World Bank TOR Terms of Reference HPRIDC Himachal Pradesh Road and Other Infrastructure Development Corporation Ltd.
5 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
1 Introduction
1.1 Assignment Background
1.1.1 The state of Himachal Pradesh has a predominantly hilly terrain. Being a hilly state, road transport is the most important mode of transport for the state. Around 90% of the total state population resides in villages. In terms of road connectivity, out of total 18946 habitations in the state only 8606 (45%) habitations are presently connected through roads.
1.1.2 It is a big challenge for the state to increase the connectivity of habitations, to expand and maintain the existing network. Apart from all this, rapid industrialization in the state (extra incentive has been given to industries in Himachal Pradesh) since last few years requires maintenance and expansion of the existing road network. In this context state is currently facing various problems like lack of financial resources for development & maintenance, in-adequate and sub-optimal allocation of available resources, institutional and governance constraints etc.
1.1.3 Some of the important planning perspectives of the state Government for the development of the state road sector include:
a) To provide connectivity to all habitations with population greater than 500 by 2009.
b) To upgrade identified State Highways and MDRs for improving service levels.
c) To upgrade important existing roads bordering adjoining states and roads in industrial/tourism/horticulture belts by the year 2012.
d) Institutionalize data base collection, storage, analysis and retrieval system, maintenance of road/ bridge inventory, road condition data, bridge inspection reports, traffic data, axle load spectrum, material sources and their characterization and unit cost.
1.1.4 To effectively achieve the planning vision that the state Government has outlined, the Government needs a sustainable and a credible source of finance which would enable the Government to achieve the required development in the road sector.
1.1.5 With the above background, the broad objective of this assignment is to identify the overall road sector financing problem and then develop options to address the identified problems. Followed by this step, an implementation plan for the option that is most preferred would also be developed in this assignment. 1.2 Assignment Goals and Objectives
1.2.1 As per the terms of reference of the assignment, the overall objectives of the current assignment are broken down broadly into four specific tasks briefly mentioned below:
6 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
a) Task 1 – Define and demonstrate the Road Financing Problem : The objective of this task is to define and demonstrate the road funding problem in the state by assessing the cost recovery regime and the existing mechanism used to allocate financial resources for the road sector. This task also requires estimation of the future financial requirement for the road sector to meet the demand arising from the economic development of the State.
b) Task 2 - Articulate the Case for or against the Road Fund: The objective of this task is to clearly highlight the pros and cons of the debated option of establishing a road fund in the State.
c) Task 3 – Identify Feasible Options and Recommend Solutions for Improving Road Financing: The objective of this task is to identify different options for the road funding problem and recommending the most preferred solution. In this task, feasible options (various feasible options including a Road Fund) that would help the Government address the current road financing problem would be generated and evaluated.
d) Task 4 – Drafting an Implementation Plan for Preferred Options: The objective of this task is to Draft a plan for implementing the preferred option. 1.3 Structure of the Assessment Report
1.3.1 The assessment report is structured to address all the tasks and deliverables specified in the Scope of the Assignment. This report focuses on the Task 1 which is highlighted above. The rest of the tasks (Task 2-4) would be dealt separately in the other deliverables.
1.3.2 The section 1 gives an introduction in the form of presenting the background and the objective of the present assignment. The section 2 presents an introduction to the overall road infrastructure including institutional overview of state PWD in HP.
1.3.3 The Section 3 outlines the resources allocation and expenditure pattern for the different road network as well as activity wise allocation and expenditure to the road sector. This section also provides analysis of the road sector in order to define road sector financing problems in the state.
1.3.4 Section 4 presents the assessment of existing road user charge regime in the state. This chapter undertakes a comprehensive review of the existing road transport related taxes, fees and charges regime and presents the key findings of the analysis.
1.3.5 The projected investments required to address the various needs of state road network are presented in the section 5 . The potential sources of funds are then projected in the section 6 and section 7 then combines the total investment requirements and the availability of funds to undertake the funding gap analysis.
1.3.6 The final chapter, Section 8, presents the consolidated results of the various analyses conducted in previous chapters. This section identifies the key financing issues and lays the future course of action for the execution of this assignment.
7 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
2 Overview of Road Network and Institutional Structure
2.1 Importance of Road Network for the State
2.1.1 In the absence of any other suitable and viable mode of transportation like railways (except for two narrow gauge railway lines of around 200 kms.) and waterways, road is the predominant and vital mode of transportation in the state. The state and other important roads play a pivotal role for accessibility to and from National Highways and to the remaining Rural Road network.
2.1.2 In the recent years, the state has aggressively pushed for industrialization to further develop the secondary sector. The targeted growth rate of secondary sector for the period 2007-12 (11 th five year plan period) is 9.3% per annum. In such a scenario, it is all the more important for the state to provide links to the industries and also to the high value fruit and vegetable crop producing areas.
2.2 Road Network Overview
2.2.1 The total length of road network in the state of Himachal Pradesh is 29329 kms. (as on November 2006). In the past few years (from 2003-04 to 2006-07) there has been an average addition in road network length of around 250 kms. per annum. The lengths of State Highways and National Highways have remained stagnant for the given period and therefore the increase in total road network has been mainly on the account of increase in Rural Road network. The category-wise details of road network are given in the table below.
Exhibit 1: Category-wise Road Network in HP as on November 2006 (in kms.) Type of Roads Length (Kms) Percent Share Total Motorable Road Length 26602 National Highways 1237 4% State Highways 2164 7% Major District Roads 2241 8% Rural Roads 20246 69% Border Roads 713 2% Total Tracks 2727 Jeepable 280 1% Less than Jeepable 2447 8% Total Road Network of HP 29329 100% Source: HP-PWD
2.2.2 Rural Roads has the maximum share in the total road network: In the overall road network Himachal Pradesh, Rural Roads has a predominant share. For example, in the year 2006-07, Rural Roads accounted for approximately 69% of the total state network.
2.2.3 Majority of the state population is residing in the rural areas / villages. As per the 2001 Census, out of the total state population of around 60.7 lacs, nearly 90% of people reside in rural areas and the rest 10% reside in urban areas. Also, in terms of economic contribution the primary sector contributes just about 30% of the NSDP, indicating low productivity of the sector. The development of Rural Roads would
8 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
therefore impact large majority of the people and is critical for the overall development of the state.
2.2.4 No network addition in the State and National Highways: There has not been increase in the network length of State Highways and National Highways in the past few years. These highways carry maximum amount of traffic hence their development has a direct impact on the state’s economic health. A recent study conducted by HP-PWD (SOS Study, 2005-06) suggests that around 1600 kms. of State Highways and MDRs need urgent up-gradation and consequently require huge investments.
2.2.5 Capacity of Road Network: Out of total road network about 91% (83% motorable single lane and 8% less than jeepable) of network consists of single lane, 1% intermediate lane and merely 8% is double lane. In terms of type of surface of the network, 57% of total network is metalled and/or tarred and the balance 43% is un- metalled roads.
Capacity of Road Network
30000
24228 (83%) 25000
20000
15000 Kms
10000
5000 2374 (8%) 2447 (8%) 280 (1%) 0 Motorable Single Motorable Double Jeepable Lees than Lane Lane Jeepable
Source: HP-PWD 2.2.6 The SOS Study conducted by the HP-PWD surveyed around 1600 kms. of State Highway and MDRs network. The study indicated that only 25% of the surveyed network can be categorized as offering a Level of Service (LOS) C or above. Rest 75% of the total surveyed network are carrying more volume of traffic than their capacity. This study indicates that these State Highways and MDRs require urgent up-gradation. The SOS study also suggests that service quality of these roads is under pressure and given the increase in traffic on the network is likely to experience higher load on the infrastructure. 2.2.7 As against these road infrastructure characteristics, the traffic and vehicle registration in the state shows an increasing trend. The total number of vehicles registered has increased at a CAGR of 13% and the addition in number of vehicles has not been commensurate with the addition in the road infrastructure.
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Exhibit 2: Total Vehicle Population (Registered Vehicles)
Total Vehicle Population
500 397 355 400 324 296 255 300 217 200
Numbers (000) Numbers 100
0 2001 2002 2003 2004 2005 2006
Source: Transport Department, PwC Analysis 2.2.8 Maintenance has significant importance for the state: Because of the geological and climatic features, many areas in Himachal Pradesh through which roads pass are prone to soil erosion, landslides and snow avalanches. Increases in traffic population are also putting pressure on the existing road network. In this context, maintenance of roads has become very important for the state. As routine maintenance alongwith periodic maintenance would decrease the asset deterioration and consequently bring down the replacement / capital costs.
2.3 Progress in Road Connectivity
2.3.1 There has been slow progress in rural connectivity in the state for the last few years. Graph presented below clearly shows the progress of connectivity form March 2001 to March 2006. The state has a total of 18946 habitations out of which only 8606 habitations have been connected with roads. It has been estimated that in order to connect all habitations approximately 18469 kms of additional Rural Road network needs to be constructed. Therefore, it is a challenge for the State Government is to take urgent steps in order to bring road network at the level of required connectivity. Exhibit 3: Status of Connectivity
Progress of Connectivity
5000 March 2001 4348 4500 March 2006 4025 4000
3500
3000
2500 2223 2000 1791 1414 1500 1155 Habitations (Numbers) Habitations 1000 521 621 500
0 1000+ 500-999 250-499 < 250 Population of Habitations
Source: Annual Report – PMGSY (2005-06)
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2.4 Institutional Overview
2.4.1 All roads (except National Highways and Border Roads) are a part of the state jurisdiction and therefore the responsibility of the development and the management of these roads is a state subject. 2.4.2 The responsibility for supervising the construction and maintenance of roads in HP rests with the HP Public Works Department (HP-PWD). The table below presents briefly the Government agencies involved with various activities for the development of the state road sector.
Functions/Agencies National Highway State Highway Rural Roads
Policy Formulation MoSRTH, GoI HP State HP State Government – Government - Secretary PWD Secretary PWD
Planning MoSRTH, GoI HP State MoRD for Government – PMGSY & HP Secretary PWD State Government
Funding MoSRTH, GoI HP State MoRD for Government – PMGSY & HP Finance State Government Department
Implementation Contracted out and monitored by HP-PWD
2.4.3 The Engineer-in-Chief is the technical head and professional advisor on policy formulation, planning, programme implementation and overall control to the Government through the Principal Secretary and the Secretary. The Engineer-in- Chief is assisted by 5 Chief Engineers and 26 Superintending Engineers for managing the directional work of planning and monitoring, structural designs, quality assurance, field supervision, budgeting etc. Works in the field are executed under the control of Executive Engineers. Besides that there is E-i-C quality and control. 2.4.4 PWD manages works of up-gradation and maintenance on the National Highways within the state on behalf of Ministry of Shipping, Road Transport and Highways (MOSRTH), GoI and also manages development of Rural Roads through the PMGSY Scheme on behalf of Ministry of Rural Development (MORD). 2.4.5 Functions: The functions performed by HP-PWD can be broadly divided into planning, supervision and implementation. The planning functions of PWD include (a) Assessing the condition of the existing network, (b) Preparing proposals and budgets for maintenance, rehabilitation and upgrading, (c) Identifying new road construction requirements, and (d) Reclassifying roads to reflect changes in their functions (declaration of roads as NHs is however, with the MOSRTH) etc. PWD is also responsible for supervising the implementation of projects. 2.4.6 Allocation of Funds: The PWD submits the Demand of Grants for funds for construction and maintenance of roads under state jurisdiction to the State Finance Department. MORSTH, GoI allocates funds for construction and maintenance of National Highways. MoRD allocates funds for capital works on Rural Roads however funding for maintenance rests with the State Finance Department. 2.4.7 Himachal Pradesh has recently set up a wholly owned subsidiary of Government called Himachal Road & Other Infrastructure Development Corporation Limited
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(HPRIDC) incorporated under Companies Act. This corporation acts as a special purpose vehicle for resource mobilization on behalf of the State Government for all infrastructures projects and also discharges obligations on this account on behalf of the State Government.
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3 Current Road Sector Financing
3.1 Overview
3.1.1 The aim of this chapter is to introduce the current road sector financing scenario in the state. This section also analyzes the pros and cons of the present sector financing and presents the key findings of the analysis. 3.2 Existing Road Sector Financing
3.2.1 The State Planning Department draws the Annual Plan for the state road sector and then the financial resources are allocated for the road sector by the State Finance Department. The road sector is currently funded through three major sources:
a) The Consolidated Fund of the State (State Budget)
b) Ministry of Rural Development (through the PMGSY Scheme)
c) MoSRTH (for National Highways)
3.2.2 The Consolidated Fund of the State can normally be defined as a fund in which all the receipts of the State Government are credited. Major sources of Consolidated Fund are allocation under the Five Year Plan, special category finances from Central Government schemes and loans from banks and financial institutions etc. In addition to that there are regular income generation from sources such as taxes and user charges. All the expenditure of the State is met through this fund with the approval of the State Government.
3.2.3 The funds allocated for the road sector are broadly spent for the following sector needs:
a) New Development/Up-gradation: This mainly involves execution of capital works (for eg. development of new roads etc.) and up-gradation of existing roads (for eg. conversion of single lane roads to double lane etc.).
b) Maintenance: This head mainly involves allocation of financial resources for routine as well as periodic maintenance of road network.
c) Administrative Expenses: This head can be broadly classified as establishment expenses including salaries, other administrative costs etc. By nature administrative costs don’t directly impact the creation or maintenance of road networks. Therefore, for the purpose of analyzing the sector financing, we have excluded the Administrative Expenses.
3.2.4 The finances required for maintenance (routine and periodic) of roads and for administrative purpose is met by the non-plan expenditure that is a part of the annual budget of the road sector. Investment requirements for construction of new roads and improvement/upgrading of the existing roads would be based on the requirements and planning for the road sector development is met through plan expenditure.
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3.3 Allocation and Expenditure for the Road Sector
3.3.1 The objective of this section is to highlight the total funds allocated for the road sector and the actual expenditure incurred on the road sector and based on these characteristics assess the current sector financing and issues.
3.3.2 The total fund allocation for the road sector comprises of budgetary allocations for state road networks (National Highways, State Highways and Rural Roads) from all the sources mentioned in the previous section. The actual expenditure for the road sector indicates the total funds spent for capital works and maintenance works on the state road network. The actual administrative expenses indicate the funds spent for administration related activities for the road sector. However, for the purpose of analyzing the sector financing, the administrative expenditure has been excluded. The table below presents the overall financial snapshot of the state road sector.
Exhibit 4: Total Fund Allocations & Actual Expenditure (Rs. Crores) Description (Rs. Crores) 2001-02 2002-03 2003-04 2004-05 2005-06 A. Total Funds Allocated for the Road Sector 604 610 665 729 882 B. Actual Expenditure on Road Sector (Capital + Maintenance Works) 408 463 542 552 723 C. Actual Administrative Expenses 69 97 100 107 117 D. Administrative Expenses as a % of Actual Expenditure on Road Sector (C/B) 17% 21% 18% 19% 16% Source: HP-PWD
3.3.3 The table clearly shows that there has been a consistent increase in the allocation of funds for the State Road Sector for the past 5-year period. The total fund allocation increased from Rs. 604 crores in the year 2001-02 to Rs. 882 crores in the year 2005-06. The annual rate of increase (CAGR) in budgetary allocations for the road sector has been 10% for the above period.
3.3.4 Similarly, the actual expenditure on road sector has also increased during the mentioned period. The total expenditure increased from Rs. 408 crores in the year 2001-02 to Rs. 723 crores in the year 2005-06. The compounded annual rate of increase in actual expenditure for the road sector has been 15% for the above period.
3.3.5 The capacity of the implementing agency to utilize the funds allocated for the road sector can be analyzed by assessing the percentage utilization (actual expenditure as a proportion of funds allocated). The utilization percent of funds increased from 68% in the year 2001-02 to around 82% in the year 2005-06.
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Exhibit 5: Overall Utilization of Funds (Expenditure as a %age of Total Allocation)
1000 82% 82% 90% 900 76% 76% 80% 68% 882 800 729 70% 700 665 604 610 723 60% 600 542 552 50% 500 463 408 40%
Rs. Crores Rs. 400 30% 300 Utilization Percent Utilization 200 20% 100 10% 0 0% 2001-02 2002-03 2003-04 2004-05 2005-06
Total Allocation Total Expenditure Percent Utilization
Source: PwC Calculations
3.3.6 The trend of fund utilization percent indicates that the state has managed to increase the ability to utilize the allocated funds and has shown a positive capacity to absorb increased fund allocation. 3.4 Allocation & expenditure on NH, SH and Rural Roads
3.4.1 The previous section outlined the overall allocation and the actual expenditure on the road sector. However, it is also important to understand the allocation of funds for various categories of roads.
3.4.2 The total allocation on National Highways, State Highways and Rural Roads is shown in the figure below. It is to be noted that the break-up of the total allocations given below does not include allocations through Calamity Relief Fund as enough information about allocations of Calamity Relief Fund on different types of Roads was not available.
Exhibit 6: Allocation of funds for NH, SH and Rural Roads for various years
Allocation by Types of Roads
750 700 686 650 600 542 550 598 500 468 450 504 400 350 300 Rs. Crores Rs. 250 200 150 71 81 61 56 100 55 50 55 45 60 62 57 0 2001-02 2002-03 2003-04 2004-05 2005-06
National Highways State Highways Rural Roads
Source: HP-PWD The above break-up doesn’t include allocations through Calamity Relief Fund, since the information about allocation of Calamity Relief fund for different types of roads was not available
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3.4.3 The above chart shows that Rural Roads form the maximum share in total allocations (for eg. in 2005-06, more than 80% of the total allocation was for Rural Roads). The allocations on Rural Roads have shown a continuously increasing trend, whereas allocations on State Highways and National Highways haven’t shown significant variations. The allocation of funds for National Highways has shown a decreasing trend, varying from 13% in 2001-02 to 7% in 2005-06. The allocation for State Highways has, however, remained nearly the same for various years.
3.4.4 Similarly, the actual expenditure on various types of roads for various years is shown in the chart below. The actual expenditure on State Highways and National Highways has shown an erratic trend for the above mentioned period. Whereas, the actual expenditure on Rural Roads has increased consistently over the above period. In the previous chapter it was indicated that the lengths of State Highways and National Highways haven’t changed in the past few years. The increase of total length of road network is on account of increasing capital expenditure on Rural Roads.
Exhibit 7: Actual Expenditure on NH, SH and Rural Roads for the past 5-years
Actual Expenditure on NH, SH and Rural Roads
600 550 536 500 450 380 400 447 437 350 300 250 295
Rs. Crores Rs. 200 150 72 44 63 100 48 54 50 40 39 39 57 0 47 2001-02 2002-03 2003-04 2004-05 2005-06
National Highways State Highways Rural Roads
Source: HP-PWD
3.4.5 It is now important therefore to compare the actual utilization of funds allocated for various categories of roads. The percent utilization of funds on various types of roads for various years is shown in the chart below.
Exhibit 8: Percent Utilization of Funds by Category of Roads
Utilization of Funds by Category of Roads
120%
88% 100% 89% 87% 87% 100% 89% 80% 75% 82% 84% 78% 73% 60% 72% 73% 63% 65% 40% Percent Utilization Percent 20%
0% 2001-02 2002-03 2003-04 2004-05 2005-06 National Highways State Highways Rural Roads
Source: HP-PWD
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3.4.6 The utilization of funds in the case of National Highways has been erratic over the above period. In 2001-02 around 89% of the funds allocated was actually spent in the case of National Highways. This decreased to 65% in the year 2003-04 and then increased to nearly 100% in the year 2005-06.
3.4.7 The utilization of funds for the State Highways has shown an increasing trend. The utilization increased from 73% in the year 2001-02 to around 89% in the year 2005- 06.
3.4.8 The utilization of funds for Rural Roads has also shown an increasing trend. The utilization increased from nearly 63% in the year 2001-02 to around 78% in the year 2005-06. However, compared to other roads (NH and State Highways) the utilization of resources allocated for Rural Roads has remained low.
3.4.9 Some of the possible reasons that explain the lower utilization of resources sanctioned for Rural Roads are presented below. Although the reasons are applicable for other National Highways and State Highways as well, still they are more prominent for Rural Roads.
i. The maximum project completion time allowed in the case of PMGSY is 15 months (for hilly states) after the approval of project. However, it was practically observed that due to hilly terrain of the state, time required for cutting and formation of road is quite higher than other areas. Also, due to the difficult weather conditions the working season is reduced normally to 7 months in a year. These problems compounded by delays in award of tender (the average time is 3-4 months, whereas the PMGSY guidelines accommodates a tendering time of 75 days) results in a delay in overall project completion. ii. A significant portion of the total state area is under the jurisdiction of forest department. Delays in getting clearances from forest department for some projects also results in over-all project delays and therefore ultimately under- utilization of funds sanctioned. iii. The State Government does not have in place any appropriate compensation / rehabilitation policy for land acquisitions. The Government has a policy of development of only those projects where land is freely and willingly available. A lack of such a policy framework results in minor disputes which are also a reason for the overall delay in project executions. iv. Specifically for the PMGSY scheme, it was pointed out by local contractors of Himachal Pradesh, that only 10-15% of the local contractors have capacity to fulfil the stringent Government requirements and criterion. The contractors found it difficult to fulfil the requirements of working like frequent testing, Quality Monitors and the Inspectors of National Quality Monitors (NQM) etc. 3.5 Allocation and Expenditure by Type of Works
3.5.1 The allocation of funds for maintenance has always been lower compared to the allocation of funds for new development/up-gradation. For e.g. in the year 2005-06 around 60% of the funds allocated were for new development/up-gradation of state road networks and the rest for maintenance related works.
3.5.2 The allocation of funds for maintenance witnessed a sharp increase in the year 2005- 06 compared to the previous years. One possible reason for this increase can be the fact that from the year 2005-06 onwards the Twelfth Finance Commission (TFC) has provided special grant of around Rs. 65 crores specifically to fund the maintenance
17 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
requirement of the state. Prior to the award of TFC, the state Government funded the maintenance requirement from its own revenues.
3.5.3 The allocation of funds for different types of works is shown in the exhibit below.
Exhibit 9: Allocation of Funds by Type of Works (in Rs. Crores)
Allocation by Type of Works
600 518 500 450 398 368 394 400 363 267 279 300 235 216 200 Rs. Crores Rs. 100 0 2001-02 2002-03 2003-04 2004-05 2005-06
Development/up-gradation Maintenance
Source: HP-PWD
3.5.4 It is observed that the actual expenditure for new development/up-gradation and for maintenance have remained comparable for the past few years. This clearly indicates that the state has effectively utilized the funds allocated for maintenance, however at the same time; the state is not able to utilize the funds allocated for capital works.
Exhibit 10: Actual Expenditure on Roads by type of works (in Rs. Crores)
Actual Expenditure by Type of Works
500 396 400 327 284 278 274 300 252 258 197 211 211 200 Rs. Crores Rs. 100
0 2001-02 2002-03 2003-04 2004-05 2005-06
Development/up-gradation Maintenance
Source: HP-PWD
3.5.5 Whereas the allocation of funds for capital works is primarily done through external resources, the allocation of funds for maintenance is done through state resources. The process of spending the funds for capital works involves traditional contracting - floating of tenders, awarding of tenders etc. which creates delays in actual execution. However, maintenance related activities do not require such detailed procedures and hence the state machinery is able to execute maintenance works faster.
18 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
3.5.6 In line with national practice, maintenance operations in the state are classified under the following categories.
i. Routine Maintenance ii. Periodic Maintenance iii. Special Maintenance iv. Rehabilitations
3.5.7 Routine Maintenance: Routine maintenance includes restoring drainage, filling pitholes and cracks, maintaining edges etc. and it is done on annual basis. The analysis of maintenance expenditure indicates that the actual expenditure for routine maintenance has remained almost comparable for the given period.
3.5.8 The total labour strength in HPPWD is around 30444 (17179 – Regular Beldars, 13265 – Daily Wages Beldars) wages of these labours are charged against routine maintenance expenditure. According to GOI norms, there should be 30 workers per 100 km but in case of HP total labour strength is about 115 workers per 100 km (total road network – 26480/total labour strengths – 30444). Because of the larger than required permanent labour force and low allocations of funds for maintenance in recent years, a large share of maintenance funds has been spent on wages leaving insufficient resources for materials and tools and equipment for ordinary repairs and renewal of surface.
3.5.9 However, it is to be noted that in routine maintenance 70-80% of maintenance cost is labour component so actual maintenance remains in the range of 20-30%.
Exhibit 11: Maintenance Expenditure by Type of Maintenance
Maintenance Expenditure
300 246 253 250 201 207 200 211
150
Rs.Crore 100 68 50 49 10 4 8 13 0 4 7 2001-02 2002-03 2003-04 2004-05 2005-06
Routine Maintenance Periodic Maintenance Special Maintenance
Source: HP-PWD
3.5.10 Periodic Maintenance: This involves periodic renewals to the road carriageway, whether gravelled, metalled or blacktopped, to ensure that adequate level of service for user is maintained. The cycle of periodic maintenance for State Highways is 5- years and National Highways is 3-years. However, it can be seen from above graph that the state has not been able to pay the required attention to the periodic maintenance needs of the state road networks. This neglect of periodic maintenance works can directly affect the quality of the road network. The expenditure for periodic maintenance was around Rs.7 crores in 2004-05, and this increased to Rs.49 crores
19 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
in the year 2005-06. Periodic maintenance is usually implemented through contractors. For periodic maintenance machinery and materials component account for 80-85% and rest is labour component. It can be concluded that periodic maintenance is ignored due to funding constraints as machinery and materials requires fund.
3.5.11 Special Maintenance: Special repairs are urgent works required to prevent further deterioration of roads and structures and to ensure safety. Examples include minor improvement of culverts, improvement of visibility for traffic, repairs to bridges, filling of large potholes and pavement rectification. Flood damage repairs /emergent repairs involve works to restore traffic on roads affected by severe weather and other natural events, e.g. heavy rains, floods, cyclones, landslides and sand dunes.
3.5.12 Rehabilitations: A road network is sustainable when it is in satisfactory condition and does not, as a whole, deteriorate over time. Individual roads do not remain static: paved roads go through a cycle of accumulating roughness, despite routine and periodic maintenance, until they are restored to their original smoothness by rehabilitation. It should be carried out in 15 years to restore smoothness and durability. But currently there is no provision for rehabilitation work in the state. 3.6 Expenditure on Roads: by category of road network
3.6.1 The present section aims at analysing expenditure on types of roads as well as on types of works.
3.6.2 Rural Roads: Both capital and maintenance expenditure on the Rural Road is higher than other roads (National Highways & State Highways). Capital expenditure on Rural Roads accounts for 89% of the total capital expenditure on state road network and the maintenance expenditure account for 51% of the total maintenance expenditure on the road sector. One of the reasons for high capital expenditure on Rural Roads is due to its geographical nature and adverse climatic conditions as a result high per km construction cost.
Exhibit 12: Expenditure on Rural Roads
Expenditure on Rural Roads
400 354 350
300 254 234 250 219 193 203 200 182 161 148 147 Rs.Crore 150
100
50
0 2001-02 2002-03 2003-04 2004-05 2005-06
New Development/Upgradation Maintenance
Source: HP-PWD
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Expenditure Per Kilometer of Road Constructed Under PMGSY
Ratio of cumulative expenditure incurred to cumulative length of road projects completed, in respect of ten States evaluated under the study, shows that Himachal Pradesh reported the highest expenditure of Rs. 27.98 per kilometer of rural road constructed, followed by Uttar Pradesh which reported Rs. 24.12 lakh per kilometer of rural road constructed and Madhya Pradesh which reported Rs. 23.05 lakh per kilometer of rural connectivity provided. Maharashtra reported the lowest expenditure of Rs. 7.0 lakh per kilometer of rural road constructed followed by Rajasthan, which spent Rs. 7.92 lakh per kilometer of rural connectivity provided and Karnataka, which incurred Rs. 9.53 lakh per kilometer of rural road projects completed.
Per Km Construction Cost
30 27.98 24.12 23.05 25 20 15 9.53
Rs.Lacs 10 7.92 7 5 0 Himachal Uttar Madhya Karnataka Rajasthan Maharashtra Pradesh Pradesh Pradesh
Source: Evaluation of PMGSY -2005
3.6.3 State Highways: State Highways account for 7% of the total road network. As can be seen from the graph below there has been very low focus on the new development/up-gradation of State Highways. But maintenance expenditure is rising over the years. It can therefore be indicated that for State Highways major focus has been on maintenance expenditure rather than capital expenditure.
Exhibit 13: Expenditure on State Highways
Expenditure on State Highways
70 59 60 50 44 43 38 40 36
30 Rs.Crore 20
10 2 3 4 4 4 0 2001-02 2002-03 2003-04 2004-05 2005-06
New Development/Upgradation Maintenance
Source: HP-PWD
3.6.4 A major reason for low focus on up-gradation or development of State Highways is because the existing funding mechanism is more of scheme based funding rather than a need based funding, for example; for Rural Roads there is clearly defined
21 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
policy PMGSY, but in case of State Highways there are no schemes/policies that dedicate a sustainable source for funding for State Highways and in such a case the investment on state roads are be pushed to the back and largely remain under- funded.
Dedicated & Directed Funding for State Highways Karnataka Government framed a Road Development Policy in order to improve the road infrastructure in the state over the 1998-2012 periods. The main objectives of this policy expand capacity and improve quality of the State Highways . The policy also encourages private sector participation in developing road infrastructure. Of the total fund allocated to PWD for repairs and maintenance, 80% is earmarked for resurfacing.
3.6.5 National Highways: For the construction and maintenance of National Highways, there is a high degree of role demarcation between Ministry of Road Transport & Highways of Govt. of India (MORTH) and PWD across the various key functions. MORTH is primarily the policy, planning and funding entity whereas PWD is involved primarily in project planning, implementation / execution and maintenance activities on all the National Highways entrusted to it in the state. The Capital and maintenance expenditure on National Highways is presented in the graph below.
Exhibit 14: Expenditure on National Highways
National Highways
50 46 45 40 39 40 35 30 30 26 26 25 18
Rs.Crore 20 14 14 15 13 10 5 0 2001-02 2002-03 2003-04 2004-05 2005-06
New Development/Upgradation Maintenance
Source: HP-PWD
3.6.6 The total expenditure in National Highways has shown an overall decreasing trend in the above period. Also, the expenditure on Capital works has been more compared to the actual expenditure on maintenance related works. 3.7 Sources of Funds
3.7.1 Having understood the fund allocation and the actual expenditure pattern on the road sector, this section deals with the sources that contribute towards funding the sector. The sources of funds for the Road Sector are made available by the Government under the gamut of total consolidated fund of the state. The Annual Plan for the road sector is made keeping the total financial resources in consideration. As mentioned earlier, the funds for financing the needs of state road sector are made available through the following broad sources:
i. Consolidated Fund of the State ii. Ministry of Rural Development, MoRD (through PMGSY Scheme)
22 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
iii. MoSRTH, GoI (for National Highways)
3.7.2 The table below details the quantum of funds raised from the above sources:
Exhibit 15: Sources of Funds (in Rs. Crores) Sources of Funds 2001-02 2002-03 2003-04 2004-05 2005-06 MoRD (PMGSY Scheme) 129 127 127 237 296 MoSRTH, GoI (for National Highways) 81 61 60 62 57 Consolidated Fund of the State 394 422 478 430 529 Total Funds Allocation 604 610 665 729 882 Source: Budget Books
3.7.3 The Consolidated Fund of the State is a combination of different sources. We have already defined the constituents of the consolidated fund of the State. The table below indicates the quantum of funds allocated for the state road sector from various constituents of the consolidated fund of the State.
Exhibit 16: Break up of Consolidated Funds of the state (Rs.Crore) Break-up of Consolidated Fund 2001-02 2002-03 2003-04 2004-05 2005-06 Central Govt. Sources 10 10 18 23 85 Central Road Fund Allocation 10 10 10 10 17 Calamity Relief Fund 0 0 8 13 68 State Govt. Sources 384 412 460 407 444 Central Plan Assistance* 64 66 93 67 106 State’s Revenues** 185 197 237 246 241 Borrowings from NABARD 135 149 130 94 97 Total Consolidated Fund of the State (Rs. Crores) 394 422 478 430 529 Source: Analysis of Budget Books *Calculated from the Total Plan Allocation for the Road Sector ** Approximate allocation of total State’s non-plan financing through own-resources
3.7.4 All the sources above have specific objectives and are allocated with various terms and conditions. For example, the specific purpose of funding from the Ministry of Rural Development, Government of India through PMGSY (Pradhan Mantri Gram Sadak Yojana) is providing accessibility to un-connected habitations in rural areas. Similarly, the borrowings through NABARD (National Bank for Agriculture & rural development) are mainly for the development of Rural Roads network in state.
3.7.5 The matrix below presents the mapping of sources from where financial resources are generated with the specific purposes of allocating these resources:
Exhibit 17: Sources of resource generation & their objectives Sources of Funds New Development/Up-gradation Maintenance Type of Roads NH SH RR NH SH RR
PMGSY, MoRD Central Road Fund Ministry of Roads - GoI
Central Plan Grants Central Non-Plan Grants State's Own Revenues
State's Borrowings- NABARD
23 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
* From the year 2005 onwards the Twelfth finance commission has awarded additional grants for maintenance in the form of non-plan grants
3.7.6 Majority of the sources mentioned above are allocated for capital works and only non-plan grants and part of state’s own revenues are funding maintenance related works. Because of the geological and climatic features, many areas in Himachal Pradesh through which roads pass are prone to soil erosion, landslides and snow avalanches. Since maintenance presumes increased importance for the state, it is very important for the state to address the funding needs for maintenance.
3.7.7 The historical trend of sources mentioned above is outlined in the line chart below.
Exhibit 18: Sources of Funds- trends for the past 5-years
350 296 300 237 246 250 241 197 237 200 185 149 150 129 130 127 Rs.Crore 135 127 106 93 94 100 81 97 61 62 60 68 50 64 66 67 57 10 10 10 13 8 17 0 0 0 10 2001-02 2002-03 2003-04 2004-05 2005-06
Central Road Fund Allocation Calamity Relief Fund Central Plan Assistance State’s Revenues Borrow ings from NABARD Ministry of Rural Development Ministry of Roads, GoI
Source: Budget Books and HP- PWD
3.7.8 If the allocations done through the resources of State Government are analysed for various years, it can be observed that they have not shown significant variations in the above period. However, the allocations through the Ministry of Rural Development have shown an increasing trend.
Exhibit 19: Percent Share of Sources of Funds Sources of Funds 2001-02 2002-03 2003-04 2004-05 2005-06 Central Road Fund Allocation 2% 2% 2% 1% 2% Calamity Relief Fund 0% 0% 1% 2% 8% Central Plan Assistance 11% 11% 14% 9% 12% State’s Revenues 31% 32% 36% 34% 27% Borrowings from NABARD 22% 24% 20% 13% 11% Ministry of Rural Development 21% 21% 19% 33% 34% MoSRTH, GoI (for National Highways) 13% 10% 9% 9% 6% Total 100% 100% 100% 100% 100% Source: Budget Books and HP- PWD
3.7.9 When all the sources from central Government are combined together, that is, if the central Government grants, funding through MoRD and funding through MoSRTH, GoI are combined, then it can be observed the central Government has contributed a
24 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
major share in funding for the state road sector. Also, funding from State’s own revenues have shown a decreasing trend over the years.
3.8 Key Issues
3.8.1 The above section clearly indicated the existing scenario of funding in the state road sector. However, to understand and define the financing problem with the road sector, it is very important to highlight the key issues in the existing funding mechanism. The key emerging issues are therefore presented briefly in this section.
a) Low Focus on development of State Highways
3.8.2 If the investment over the past few years for new development/up-gradation is considered, it is clearly observed that the share of State Highways is almost negligible compared to National Highways or Rural Roads.
3.8.3 A recent study done by the HP-PWD (Ref: Strategic Options Study 2005) indicated that nearly 1600 kms of State Highways in the state need urgent up-gradation and therefore they require huge capital investments. However, the present allocation mechanism makes the state dependent on centre or on market borrowings to fund the development of State Highways (part of plan expenditure). The urgent needs are therefore postponed till the availability of funds. This delay in addressing urgent needs result in a high opportunity cost for the state that would otherwise have impacted the overall development of the state.
b) Over-dependence on External Sources for funding
3.8.4 An analysis of the broad sources of funds presented previously clearly shows that out of the total funds currently being generated for the state road sector, external sources namely central grants, funding through Ministry of Rural Development, MoSRTH and the borrowings (mainly from NABARD) together form a bigger share than the state revenues themselves.
Exhibit 20: External Sources as a % Total Funding Sources of Funds (Rs. Crores) 2001-02 2002-03 2003-04 2004-05 2005-06 State's Own Revenues 185 197 237 246 241 External Sources 419 413 428 483 641 Total Funding (Rs. Crores) 604 610 665 729 882 External Sources as a Percentage of Total Funding 69% 68% 64% 66% 73% Source: Budget Books and Analysis
3.8.5 HP, being a highly debt stressed state; it is highly likely that the state may not be able to continue present levels of borrowings (Rs. 19,000 crores debt compared to a GSDP of Rs. 20,000 crores in 2005).
3.8.6 Similarly, the Fiscal Responsibility and budgetary Management Act 2003 (FRBM Act) may not allow centre to shower the same kindness to the state in future (HP, being a special category state gets a grant of 90% from centre in financing it’s annual plans compared to other normal states who get a grant of only 30% for financing their annual plans). In such a case, state road sector can be exposed to severe lack of funds. All these factors when combined indicate that currently the state road sector is over dependent on external sources for funding.
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c) The existing sector financing does not promote need based funding
3.8.7 In the context of HP State it must be noted that owing to it’s hilly terrain, the average cycle time for a particular road network needing maintenance is lesser compared to other areas in the plain. Whereas various schemes are in place to promote new development/ up-gradation of roads in the state, no specific focused scheme is in place to fulfil maintenance needs. It is also not possible to divert funds from specified schemes to other activities as and when the need arises.
3.8.8 The maintenance needs are normally taken care by the State’s own revenues (through the non-plan expenditure) and the new development/up-gradation needs are normally financed by the Central grants-in-aid (plan expenditure & PMGSY). The Centre, at present, grants a very limited aid to the state for road sector maintenance (only from the year 2005-06, the 12 th Finance Commission has agreed for a road maintenance grant-in-aid of Rs. 65 crores!!).
3.8.9 However, due to the fiscal constraint on the state’s overall ability to generate financial resources and market borrowings, a future scenario is likely to force the maintenance needs of the road network under-financed. The existing funding mechanism is more a scheme based mechanism than a need based mechanism. Therefore, a co- ordinated policy framework that provides a vision and clarity to promote the road sector financing as per the needs of the sector is not present in the existing funding mechanism.
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4 ASSESSMENT OF ROAD USER CHARGES AND TAXES
4.1 Overview
4.1.1 The Government spends a considerable amount of resources in building road infrastructure. For future development and also for continued maintenance of the infrastructure, it is therefore imperative that the Government gets the due share back from the road sector. In this context, the various fees and charges that are levied for using roads can therefore be seen as a tool used by the Government to get the due returns from the road sector.
4.1.2 The broad objective of this chapter is to undertake a comprehensive review of the various taxes, fees and charges that can be broadly linked to the road sector.
4.2 Types and Objectives of Existing Road User Charges
4.2.1 Road User: The term “Road User” can broadly include the different vehicles that are currently using the roads of the state. On the basis of their broad classification they can include buses, trucks (multi-axle, high capacity, light capacity etc.), cars, two- wheelers, taxis, vans etc.
4.2.2 Road User Charge: The term “Road user charges” can be broadly defined as the composition of all those charges, taxes and fees levied by the Government that are levied directly or indirectly on “Road Users” defined above.
4.2.3 The list presented below summarizes the various types of taxes, fees and charges that are levied on different road users in the state.
Exhibit 21: Different charges levied on “Road Users” in the State Types of Road Users State Transport Department State Excise & Taxation Department Token Tax Toll Tax Route Permit Fee Sales Tax on Fuel Buses Registration Fee Sales Tax on Motor Vehicles & Spare License Fee Parts Special Road Tax
Composite Fee Goods Tax Route Permit Fee Toll Tax Trucks Registration Fee Sales Tax on Fuel Token Tax Sales Tax on Motor Vehicles & Spare License Fee Parts
Toll Tax Registration Fee Sales Tax on Fuel Car Token Tax Sales Tax on Motor Vehicles & Spare License Fee Parts
Toll Tax Registration Fee Sales Tax on Fuel Two Wheelers Token Tax Sales Tax on Motor Vehicles & Spare License Fee Parts
Registration Fee Passenger Tax Others Route Permit Fee Toll Tax (Jeep/Taxis/Vans) Token Tax Sales Tax on Motor Vehicles & Spare License Fee Parts Source: Stakeholder Consultation
27 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
4.2.4 The state Transport Department is empowered to collect fees and taxes as per Indian Motor Vehicle Act, 1988 and State Motor Vehicle Act, 1972. The Excise and Taxation Department is empowered to collect taxes as per Himachal Pradesh Passenger and Goods Tax Act, 1955. The Indian Motor Vehicles Act 1988 covers the regulation, control and operation of transport vehicles, including the licensing of drivers and conductors, registration of motor vehicles etc. This Act, supplemented by the Central Motor Vehicle (CMV) Rules 1989, defines the powers of the Central and State Governments with regard to the framing of rules, practices and procedures.
4.2.5 The collection of road user charges is the responsibility of two different departments in the state. For example, toll tax and sales tax (on motor vehicles & fuel) are being collected by the State Excise & Taxation department, whereas registration fee, license fee etc. are being collected by the State Transport Department. Also the goods and passenger vehicles need to register themselves both with the State Transport Department as well as with the state excise and taxation department. This procedure of multiple registrations involves un-necessary administrative hassles for the road users.
4.2.6 Apart from these taxes, the central Government also levies a cess on both petrol and diesel (as per the Central Road Fund Act 2000). However, the state Government is presently not levying any additional cess on fuel apart from the centrally levied fuel cess.
4.2.7 The table presented below indicates a summary of the objective of various road user charges as well as the frequency at which these charges are levied.
Exhibit 22: Objective and Frequency of Incidence of Road User Charges Fee/Taxes Objective of Fee/Tax Frequency of Incidence To make the record of different types of Registration vehicles for administrative and Fee is charged at the time of purchase Fee inspection purposes. Fee is charged to of vehicle cover the administrative expenses. Fee is charged at the time of issuing Fee is charged to give authorization to Licensing Fee driving license and for renewal of drive the vehicle on road license To give permission to stage carriage, This fee is valid for five years after that Route Permit contract carriage and trucks to operate it renewed with Fee on specified roads minimum charges To cover the charges of state roads For buses fee is charged on monthly Composite used by vehicles registered in a basis and for goods Fee different state Vehicles it is half yearly/annual basis Tax is charged on contract carriages Passenger To cover the expenditure of on annual basis depending Tax infrastructure used by the passenger. on the seating capacity of vehicles To cover the expenditure of Tax is charged on goods Vehicle on Goods Tax infrastructure used by the goods annual basis depending on the loading vehicles. capacity of vehicles For personal vehicle tax is valid for To give permission to vehicle for road whole life of vehicle. For Token Tax access commercial vehicle tax is charged on annual basis To give authorization to stage carriages Special Road for plying on the National Highways, This tax is charged on monthly basis Tax Intra-State/Inter-State routes, State on stage carriage buses. Highways, Rural Roads Toll tax is charged at the time of entry To permit vehicles for entry in the state Toll Tax into the state territory and use state roads Territory and is valid for 24 hours Sales Tax on Taxed as a commodity as per state Tax is charged at the time of purchase Fuel Government policy to generate revenue of fuel
28 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
Sales Tax on Tax is charged at the time of purchase Taxed as a commodity as per state Motor Vehicle of motor vehicles, Government policy to generate revenue & Spare Parts Spare parts and lubes. To fund the expenditure on road Cess on Fuel development. This cess doesn’t form At the time of purchase of fuels revenues of the HP State Government. Source: Central and State Motor Vehicle Rules, Various Department Consultations
4.3 Classification of Road User Charges
4.3.1 The section above indicated different taxes, fees and charges that are currently levied on road users. However, not all the user charges that are explicitly or implicitly collected from the road users are used for directly funding the road sector. In consonance with the principle of general taxation, these collections form a part of the state Government’s revenue receipts and the allocation for the road sector is finally done from the kitty of total state revenue receipts.
4.3.2 Each charges and taxes have their own characteristics. Some of these taxes such as sales tax on motor vehicle, and fee like registration and license fee are related to the at the incidence of “Purchase of Vehicle” i.e. any buyer of a vehicle has to pay these taxes independent of the road usage.
4.3.3 The other charges are directly related to the “usage of roads” i.e. once vehicle is brought on road user has to pay these taxes such as toll tax, sales tax on fuel during purchase of fuel, special road tax, passenger & goods tax etc.
4.3.4 In the state of Himachal Pradesh, there are no specific collections that are done only for the development of the road sector. This is to say that all the above charges and taxes form the “general revenue kitty” of the Government. All these taxes are used by the Government as a policy instrument in order to make economy more efficient in terms of generating financial resources.
4.3.5 Basis of classification: In such a scenario, where it is difficult to separate “Road user Charges” from “General Taxes” it is very difficult to classify these charges as general revenues and as road user charges. Looking from the Government’s point of view, the Government would ideally like to classify these taxes and charges in a way that would assist it to increase the revenue collections and decrease the risks in revenue collections.
4.3.6 There is no comprehensive or ideal way to classify these road user charges into different categories. Therefore, if we base our argument on the fact that the user should pay the road user charge based on the event of road use , these taxes can be broadly divided into two types (It is very important to make a caution note here that in any way these charges do not actually reflect the recovery in cost of road usage):
a) Explicit Charges: Explicit charges are those charges that are charged to the user on the event of road use. This is to say that whenever a road user uses roads; he needs to pay these charges. For eg. if a user wants to use his vehicle he will need to pay sales tax on fuel, cess on fuel etc. It is observed that economy which is slightly buoyant uses these charges as an instrument for revenue generation because return from these charges are high and at the same time risk is also high. Even this classification is not comprehensive, for eg. if a non- road user is purchasing fuel (for power generation), sales tax and the fuel cess would still be levied.
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b) Implicit Charges: Implicit Charges are those charges that are charged to a road user but not charged on the event of road use. For example, if a user purchases a motor vehicle, he needs to pay a registration fee, sales tax etc. irrespective of his usage pattern.
4.3.7 It was very difficult to present an analysis owing to a large number of heads under which various taxes are collected. Not enough information was available regarding the tax collections in some cases. Therefore, for the sake of simplifying the road user charge assessment, various road user charges indicated previously have been clubbed under broad heads given below:
Exhibit 23: Implicit and Explicit Charges Classification Broad Heads of Road User Charges Sales Tax on Motor Vehicles and Spares Implicit Charges Taxes on Vehicles* Passenger Tax Goods Tax Tax as per CGCR Act (Certain Goods Carried by Road Act) Sales Tax on Petrol Explicit Charges Sales Tax on Diesel Fuel Cess on Petrol Fuel Cess on Diesel Others (Toll Tax, other receipts, sales tax on lube etc.) * Includes Token Tax, Registration Fee, Licensing Fee etc. 4.4 The Total Road User Charges Collection
4.4.1 The total road user charges collected under various broad heads (classified in the table above) by the state of Himachal Pradesh for the past few years are indicated in the table below:
Exhibit 24: Total Road User Charges Composition Total Road User Charges Collection (Rs. Crores) 2002-03 2003-04 2004-05 2005-06 CAGR 1. Sales Tax on Diesel 65 74 97 124 24% 2. Taxes on Vehicles 82 78 108 101 7% 3. Tax on Goods Carried by Road 54 62 70 80 14% 4. Sales Tax on Petrol 41 47 61 78 24% 5. Fuel Cess on Diesel*** 34 51 53 76 31% 6. Sales Tax on Motor Vehicles and Spares 33 38 49 63 24% 7. Goods Tax 22 24 28 33 14% 8. Fuel Cess on Petrol** 7 12 12 16 32% 9. Passenger Tax 8 9 10 8 0% 10. Others (Toll Tax etc.) 17 18 25 26 15% 11. Total Road User Charges* (sum of 1-10) 364 413 511 605 605 12. Total Charges collected by the State excluding fuel cess (11- (5+8)) 322 351 446 513 513 Source: Budget Books of Himachal Pradesh *Includes all taxes and charges collected as per state motor vehicles act and the Indian motor Vehicles Act (includes Registration fee, licensing fee, route permit fee, composite fee etc.) ** This charge is calculated on the basis of cess rate multiplied by the consumption of petrol in Himachal Pradesh. This cess is debited to the account of Central Road Fund and is not a part of State’s collections. ** This charge is calculated on the basis of cess rate multiplied by the consumption of diesel in Himachal Pradesh. This cess is debited to the account of Central Road Fund and is not a part of State’s collections.
30 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
4.5 Contribution to Road User charges by each vehicle type
4.5.1 After introducing the different types of taxes which can be broadly linked to the road sector, this section will indicate the relative share of contributions of the road user charges from different types of road users.
Assumptions
4.5.2 It was noted during the interactions that there is a lack of information regarding the collections of user charges for different users. Therefore, an analysis was done using suitable assumptions to estimate the approximate burden of these charges on various users. The table below indicates the various assumptions that were taken to estimate the tax contributions by each vehicle type.
Assumptions of allocating share for each Basis of computation Road User Charges vehicle type The Primary source of passenger taxes 100% apportioned to collections are contract carriages (mainly jeeps/taxis Passenger Tax jeeps/taxies/vans). This tax was apportioned therefore to jeeps/taxies. Assumed that the total collections of this tax is 100% apportioned to contributed by trucks (all types- multi-axle, LCV, trucks Goods Tax HCV) that are the primary mode of goods transportation Assumed that the total collections of this tax is 100% apportioned to Tax as per CGCR contributed by trucks that are the primary mode of trucks Act goods transportation Includes receipts under the State motor vehicles Weight= Average Seating Act and the Indian Motor Vehicles Act. The tax is Capacity* Total No. of levied mainly on buses, jeeps, vans etc. The Vehicle Taxes on Vehicles basis used to apportion this tax to different vehicles is the average seating capacity of each vehicle. Weights are calculated for each vehicle type on Weight= Average Cost of the basis of the approximate unit costs each vehicle* No. of Sales Tax on Motor (Rs./vehicle) and the total sales (no. of vehicles vehicles sold Vehicles sold for each type). Weights were then accordingly apportioned to the total sales tax collected to estimate the break-up. Major consumers of petrol are 2-wheelers and Wt.= Average petrol cars. On the basis of consumption average (Litres consumption * average of petrol/km traveled) and distance traveled by distance traveled * no. of each vehicle, this tax was apportioned. It was vehicles Sales Tax on Petrol further assumed that cars and 2-wheelers are mainly used for personal purposes; therefore the average distance traveled by each vehicle will not show high variation. Wt.= Average of diesel Assumed buses and trucks are the major consumption * Average Sales Tax on Diesel consumers of diesel. Apportioned on the basis of distance traveled*no. of average diesel consumption by each vehicle. vehicles Wt.= Average petrol Apportioned in the same ratio of contribution in consumption * average Fuel Cess on Petrol sales tax on petrol distance traveled * no. of vehicles Wt.= Average of diesel Apportioned in the same ratio of contribution in consumption * Average Fuel Cess on Diesel sales tax on diesel distance traveled*no. of vehicles
31 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
Major Inputs in Road User Charge Assessment 4.5.3 The inputs used to estimate the share of total road user charge burden on different types of vehicles are the following: a) The Total Road User Charges in the state (indicated in the previous section) b) The share of different types of road users (2-wheelers, cars, trucks etc.) in the state. 4.5.4 The total number of motor vehicles registered in the state is estimated to be approximately 2,96,000 (as on 2003). The total number of motor vehicles registered during a particular year in the state was published in the Statistical Outline of HP. The average share of different types of road users (2-wheelers, cars, trucks etc.) in the state is presented below. Exhibit 25: Vehicles Distribution in Himachal Pradesh (2003)
Others (Jeeps/Taxis/V Buses 2% ans etc.) Trucks 13% 5%
Cars 25% 2-Wheelers 55%
Source: Indiastat.com and Statistical Outline of HP, 2003-04.
Matrix of Relative Share of Road User charge collections from each vehicle
4.5.5 Using the above assumptions, the different types of road user charges collected on each vehicle type are presented in the matrix below.
Exhibit 26: Charges paid by Road Users (2005-06) (Rs.Crores) Buses Trucks 2-Wheelers Cars Others Total* % (Jeeps/Taxis/ Vans etc.) Sales Tax- Diesel 37.15 86.69 - - - 123.84 20% Taxes on 60.86 - - - 40.57 Vehicles 101.43 17% Tax on Goods Carried by Road - 79.84 - - - Act 79.84 13% Sales Tax- Petrol - - 23.44 54.68 - 78.12 13% Fuel Cess- Diesel 22.67 52.90 - - - 75.57 12% Sales Tax- Motor 6.56 10.93 3.83 17.49 15.30 Vehicles 63 10% Goods Tax - 32.84 - - - 32.84 5% Others (Toll Tax 3.05 9.92 5.53 5.72 1.78 etc.) 26 4% Fuel Cess- Petrol - - 4.94 11.54 - 16.48 3% Passenger Tax -** - - - 7.66 7.66 1% Total 130.29 273.12 37.74 89.43 65.31 605 % 22% 45% 6% 15% 11% 100% Source: PwC Analysis *Toll tax and tax collected by central Government (excise duty) is not included **Amount is either negligible or not applicable for vehicle category
32 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
4.6 Analysis of the Road User Charge Regime
4.6.1 The objective of this section is to present the analysis of the existing road user charge regime in the state of HP.
a) Analysis of the road user charge regime by different classes of Road Users
4.6.2 A summary of the matrix presented in the previous section (Exhibit 26) which indicated relative share of road user charges contribution for each vehicle is presented below.
Exhibit 27: Taxes Paid by each Vehicle Types Vehicle Type Amount (Rs. Crores) Share Trucks 273 45% Bus 130 22% Cars 89 15% Others (Jeep/Taxis) 65 11% 2-Wheelers 38 6% Total 605 100% Source: PwC Analysis
4.6.3 Ideally charges paid by different vehicle categories should vary in proportion to the costs that the categories impose on the state road infrastructure. As trucks and buses are heavy vehicles and they impose maximum damage to the road and therefore they should pay more in comparison to other vehicles.
4.6.4 As can be clearly seen, trucks account for the maximum contribution to the total road user charges paid by all vehicles (accounting for approximately 45 % of total charges). Out of the total charges contributed by trucks, goods tax account for 43 per cent, sales tax on diesel account for 37 per cent and cess on diesel which is collected by central Government account for 20 per cent of the total contribution.
4.6.5 Bus accounts for nearly 22 % of the total road user charges collected. Major charges paid by buses include special road tax and other taxes like token tax, registration fee etc. All these major charges together account for 48 % of the total contribution by bus. Sales tax on diesel accounts for another 29% and cess on fuels accounts for the rest.
4.6.6 In the category of personal vehicles, cars account for 15% and Two–Wheelers account for 6 % of the total road user charges paid by all vehicles. Major charges paid by these vehicles include tax and cess on fuels and other motor vehicles related taxes such as token tax, registration fee etc.
4.6.7 Charges paid by other category of vehicles such as jeep/taxis/vans which are basically used as contract carriage account for 11 % of the total taxes paid by all vehicles. Major taxes paid by this category of vehicle include passenger tax (accounting for 12 %), taxes on vehicles including token tax, registration fee, special road tax, route permit fee (accounting for 64% of the total).
b) Analysis of the road user charge regime by different types of road user charges
4.6.8 The table below presents a snapshot of the share of different types of road user charges in the total road user charge collection (refer Exhibit 26).
33 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
Exhibit 28: Type of Road User Charges Types of Road User Charges Amount (Rs. Crores) Share Sales Tax on Fuel (Petrol +Diesel) 202 33% Passenger & Goods Tax 120 20% Taxes on Motor Vehicles 101 17% Cess on Fuel going to Central Road Fund (Petrol +Diesel) 92 15% Sales Tax on Motor Vehicles & Spares 64 11% Others (Toll Tax etc.) 26 4% Total 605 100% Source: Excise and Taxation Department, Transport Department HP, 2003-04.
4.6.9 For the sake of simplifying the analysis, the sales tax on diesel and sales tax on petrol have been clubbed into a major category- Sales Tax on Fuel. Similarly cess on Petrol & diesel (that directly goes to Central Road Fund of India ) has also been clubbed under “Cess on Fuel”.
4.6.10 As is evident from the table, sales tax on fuel which is collected during the sale of Petrol and Diesel accounts for the maximum contribution in the total road user charges collection (around 33% of the total). Sales Tax on Fuel has shown a CAGR of around 13% over the period. Similarly, passenger & goods tax and sales tax on motor vehicles account for 20% and 17% respectively. Passenger tax, over the years has almost remained the same whereas goods tax has shown a CAGR of around 14% in the above period.
4.6.11 Currently, the sales tax on Petrol is levied at the rate of 25% and the sales tax on Diesel is levied at the rate of 14%. Charges paid by different vehicle categories should ideally vary in proportion to the costs that the vehicles impose on road. Insofar as heavier vehicles (like trucks, buses etc.) use diesel as their fuel, they are being charged less with respect to lighter vehicles (like cars, 2-wheelers etc.) that consume petrol.
4.6.12 However, it is understood that apart from the rough costs imposed by vehicles on the road, other factors like political considerations and sales tax rates in neighbouring states (like Punjab, Haryana etc.) also play a significant impact in the determination of sales tax rate. It is also observed that an increase in the price of diesel directly impacts the prices of essential commodities (like vegetables, rice etc.). These social and political considerations, therefore, introduce a complexity in linking the rate of sales tax with the usage costs.
c) Summary of Key Findings
a) Around 80 % of the total road user charges are being contributed by commercial vehicles (which includes trucks, buses, taxies, vans etc.).
b) Charges collected from trucks and buses appear to contribute the maximum share in total road user charges collection.
c) Charges collected from fuel (Sales Tax + Cess on petrol & Diesel) account for half of the revenue from road users.
34 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
4.7 Road User Charges Paid by Non Road Users
4.7.1 The analysis presented in the previous sections had an inherent assumption that all the road user charges that were collected by the state in the form of various fees and taxes are paid by genuine road users. All the charges apart from the cess and the sales tax on fuel can certainly be qualified as charges that are being paid by road users.
4.7.2 However, diesel is also used as a fuel for power generation (by railways, agriculture, power generation sector etc.) apart from it’s major use as a fuel for transportation. The sales tax (@ 14%) and the fuel cess (@ Rs. 2/litres) are currently being levied on diesel during the purchase of diesel without considering the end-use of diesel. Therefore, it is necessary to estimate the share of such charges which are defined as road user charges and are not being contributed by the genuine road users.
4.7.3 The All India average consumption figures of Diesel indicate that around 50% of the total diesel consumed is contributed by the Transportation Sector and the rest is mainly being used for the generation of power. Whereas, other parts of the country use diesel to a greater extent for generating power, the state is not expected to consume the same share of diesel owing to a comparative lesser degree of industrialization. Therefore, in the context of Himachal Pradesh, we assume that the average consumption of Diesel for non-transportation sector would be in the range of 20%. The trend of diesel consumption by the non-transportation sector is indicated in the table below.
Exhibit 29: Diesel Consumption by Non Road Users for HP Assumption 2002-03 2003-04 2004-05 2005-06 Diesel consumed by non- transportation 20% 20% 20% 20% sector as a % of total diesel consumed Source: PwC Assumption
4.7.4 Using the above assumption, the following table indicates the amount of share in total user charges being paid by the non-road users.
Exhibit 30: Total Charges contributed by non-users of road Description 2002-03 2003-04 2004-05 2005-06 Total Cess + Sales Tax on Diesel paid by 20 25 30 40 Non-Users (Rs. Crores) Total Road user charges collected (in Rs. Crores) 364 413 511 605 Total Charges contributed by non- users as a %age of total road user 5% 6% 6% 7% charges collected Source: PwC Calculations
4.7.5 The table above indicates that around 7% of the total road user charges collected is being contributed by the non-road users. Significant amount of fuel is being consumed by the non road users (for other than transportation purposes). Every buyer has to pay fuel cess and sales tax while purchasing diesel, irrespective of the end-use of the diesel purchased. It is therefore important to understand whether any mechanism that addresses this issue exists or not.
4.7.6 Currently, no efforts have been made by the state Government to ensure that non transport users do not have to pay the fuel levy (cess and the sales tax). Non- transport uses of diesel should normally be untaxed but any arrangement of exemptions would be very difficult to monitor and enforce effectively. The box
35 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
presented below indicates some arrangements to exempt non-road users from paying user charges that are being followed in other countries.
Exempting Non Road Users Arrangement 1: Under this arrangement, non-road users of diesel fuel obtain the fuel without having to pay the fuel levy that goes into the road fund. Diesel fuel is made available to non-road users either tax-free or at a reduced rate of taxation. The system is generally applied only to large users of diesel (e.g., coastal shipping or power generation). In such cases, there are few users and it is relatively easier to administer. When the exemption applies to a category which includes a large number of users, the users are required to file an exemption certificate or other documentation certifying that the diesel being purchased will not be used to power road vehicles. This practice is followed in countries like Central African Republic, Chad and Ghana etc. Arrangement 2: Some countries have chosen to make everyone pay the diesel levy and to permit non-road users to apply for subsequent reimbursement. The non-road user therefore pays the fuel levy and then submits a request for a refund, together with the receipt to which the refund applies. This system is used in New Zealand, Namibia. The United States uses the same system for certain categories of fuel users. Source: Secondary Research
4.8 Road User Charges Returned to the Sector
4.8.1 The previous chapter indicated that in the year 2005-06, approximately Rs.600 crores was collected in the form of road user charges. However, for the same year the total expenditure on various activities for the road sector was approximately Rs. 723 crores. Similarly, in the year 2005-06 the state invested around Rs. 241 crores in the road sector from its own revenues (through tax and non-tax collections).
4.8.2 In this section we would try to examine the portion of the total road user charges that are returned by the state to the sector.
4.8.3 Since, the fuel cess collected is directly debited to the Central Road Fund; the total road user charges collected by the state should exclude the total collections from fuel cess. There can be two possible scenarios for assessing the portion of the total road user charges that are returned to the sector.
i. Scenario 1: Road User Charges including charges paid by Non-Road Users
ii. Scenario 2: Road User Charges excluding charges paid by Non-Road Users
4.8.4 The table below indicates the portion of road user charges returned to the road sector under the Scenario 1.
Exhibit 31: Road User Charges returned to the road sector (Scenario 1) Money Returned to the sector 2002-03 2003-04 2004-05 2005-06 State's Revenues put in road sector* 197 237 246 241 Road User Charges (RUC) Collected by State 322 351 446 513 State Revenues put in Road Sector as a %age of total road user charges collected by the state. 61% 68% 55% 47% * Own Revenues put in Road Sector (Tax & Non-Tax Revenues). Excludes state’s borrowings
4.8.5 The table below indicates the portion of road user charges returned to the road sector under the Scenario 2.
36 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
Exhibit 32: Road User Charges returned to the road sector (Scenario 2) Money Returned to the sector 2002-03 2003-04 2004-05 2005-06 State's Revenues put in road sector* 197 237 246 241 Road User Charges Excluding the Charges paid by Non-Road Users 302 326 416 473 State Revenues put in Road Sector as a % of User charges collected by state and excluding non-road user charges collection 65% 73% 59% 51% * Own Revenues put in Road Sector (Tax & Non-Tax Revenues). Excludes state’s borrowings
4.8.6 In both the scenarios, it can be observed that the state is not re-investing the collections from the road user charges for the development of the road sector. Majority of the collections from the sector are therefore getting absorbed to fund other sectors. 4.9 Correlation between road user charges and road expenditure
4.9.1 The exhibit below shows that the total expenditure on the state road sector and the total revenue collected from road users display similar trend. The coefficient of correlation between the above 2 variables is around 90%.
Exhibit 33: Trend of road user charges and expenditure on road sector
800 723 700 552 600 542 463 500 513 400 446 300 Rs. Crores Rs. 322 351 200 100 0 1 2 3 4
Total Expenditure Road User Charges (RUC) without Fuel Cess
Sources: HP – PWD, PwC Analysis
4.9.2 This means that the total expenditure on roads displays some relationship with the total user road charges collected. Using simple regression analysis, this relationship was established between road user charges and expenditure on road sector. But since the current policy framework doesn’t allow the determination of the expenditure in road sector in relation to the total road user charges, no definite conclusion can be drawn from the regression analysis.
4.9.3 Therefore this relationship can not be used to predict or link expenditure on road with the total road user charges collected in the road sector.
37 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
Exhibit 34: Relationship between road user charges and expenditure
700 Y = 0.6919X + 50.903 600 500 400 300 200
Road100 User Charges 0 0 100 200 300 400 500 600 700 800 900 Expenditure on Roads
Source: HP-PWD & State Budget, PwC Analysis
38 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
4.10 Key Findings
a) The total collections through the road user charges is insufficient to cover the expenditure on road sector
4.10.1 A comparison of the total road sector expenditure in the state of HP and the total road user charges collected shows that road user charges are not-sufficient enough to cover the total expenditure in the sector (for example in the year 2005-06, the road user charges, including the fuel cess on Petrol & Diesel, could cover 84% of the total expenditure in road sector).
b) The rates of Road User Charges are not determined on a scientific basis
4.10.2 The costs that the vehicle imposes on roads are directly proportional to the weight of the vehicle and the distance travelled by the vehicle. However, these considerations do not form a part in deciding the rates of road user charges. Therefore they do not follow the principle of pay as per the cost imposed on roads due to use.
4.10.3 For example, the rates at which trucks are charged do not vary with the distance they intend to travel on the state roads. Although there are some variations on the rates of the road user charges with respect to the weight they carry, they do not seem to have a scientific basis. Some countries have imposed a more scientific basis of determination of road user charge rates as indicated in the case of New Zealand stated below.
Road User Charging in New Zealand
The Road User Charges Act was introduced in New Zealand in 1977. Since April 1978, most heavy vehicles were required to pay licence fees directly proportional to the total distance traveled. The fee scale varies according to the type of vehicle, the number and spacing of axles on the vehicle, and the number of tyres on the vehicle. Vehicle classes are based on combinations of these characteristics. For each class, the scale of the distance-related fee rises steeply with increasing gross vehicle weight up to a threshold of 30 tonnes. Above 30 tonnes, there are linear scales per tonne for all vehicles.
Source: Productivity Commission, Progress in Rail Reform, Draft report
c) Lack of overloading charges
4.10.4 Overloading of vehicles puts extra cost on roads leading to earlier road damage and high maintenance cost. Ideally, overloading should be monitored and stopped. When detected a penal charge also could be levied prior to removing such vehicles from the roads. Also at the moment, there are no measures that have been taken in the state to monitor and impose overloading charges on vehicles to discourage this practice
d) The portion of the Road User Charges returned to the sector has decreased over the period
4.10.5 In the year 2002-03, around 65% of the total road user charges collected was returned to the sector. However, the share decreased to 51% in the year 2005-06. Whereas, there has been a general increase in the total road user charges collections, the share returned back to road sector has shown a decreasing trend.
39 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
e) Lower Fuel Sales tax rates in border states can impact the state revenue collection of HP
4.10.6 There is a wide variation in the fuel sales tax rates among States. This can lead to a loss in revenue to the state and can also affect movement of goods and passengers across inter-state borders.
4.10.7 For example, as can be clearly seen from the exhibit below, sales tax on diesel which is used by heavy vehicles is higher in Himachal Pradesh compared to the adjacent states like Haryana and Punjab. This may lead to revenue loss to the Government because vehicles coming from the inter-state borders may tend to buy diesel in these states and can easily get away without paying any sales tax for using the road networks of Himachal Pradesh.
Exhibit 35: State-wise diesel and petrol sales tax rate (Percentage) - 2005-06
Sales Tax Rate on Fuels (2006) MS HSD Neighboring States
40 34 27.5 28 29 30 25 25 25 21 21 20 20 20 20 12 14 12 8.8 Percent 10 0 Harayana Punjab Himachal Uttaranchal Jammu & Rajasthan Uttar Maharashtra Pradesh Kashmir Pradesh
Source: Ministry of Petroleum and Natural Gas
f) Leakages in Total Road User Charge Collections
4.10.8 During the test check-up of the CAG Audit, revenue leakages were observed in road user charges collection due to lack of proper monitoring and enforcement. Amount of loss incurred during the year is presented in the table below. The major reason for revenue leakage includes:
a) Non recovery of token taxes b) Non levy of special registration fee c) Short recovery of fee d) Vehicle not registered with Excise and Taxation Department Exhibit 36: Revenue Leakages Type of Revenue Leakages Number of Cases Amount (Rs.Crore) Non/Short Realisation 56 0.65 Token Tax 54 0.29 Passenger & Goods Tax 2 0.36 Tax Evasion 90 1.64 Token Tax 76 1.41 Passenger & Goods Tax 14 0.23 Other Irregularities 126 21.84 Vehicle Tax 101 21.03 Passenger & Goods Tax 25 0.81 Source: CAG Audit Report 2005-06.
40 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
5 FUTURE FUND REQUIREMENTS
5.1 Need for Finance
5.1.1 As described in the previous chapters the requirement of funds specifically for the road sector cannot be clearly separated from the requirement of funds for the state’s overall vision in development. However, the need for funds in the road sector can be broadly dependent on the following factors:
A) The overall strategic objective of the state for achieving economic and social development of the State (through five year plans and annual plans).
B) The social and political commitments of the state.
C) The requirements of the road network in the state (providing up-graded links of tourism and economic importance, traffic de-congestion, maintenance for wear and tear etc.).
5.1.2 The Annual Plan for the State road sector is framed by the State Planning Department in consultation with the State Public Works Department. For example, the initial five year plans focused more on connectivity and therefore there was an extensive push for development of extensive road network initially.
5.1.3 As per the draft approach to the 11 th Five year Plan, the strategic objective of the 11 th five year plan would be to provide an opportunity for faster and more inclusive growth. Since more than 90% of the State’s population resides in rural areas, the five year plan would prioritize its objectives to provide maximum gains to the majority of the state’s population (rural areas).
5.1.4 This objective when translated to overall state’s objectives would mean that the Government would focus more on the provision of essential public services (especially for the poor and disadvantaged sections of society), increasing farm incomes, developing vital rural infrastructure, nurturing human capital, protecting the environment and improving governance. For the road sector, specifically, the objective for the next five year plan would be to ensure that by the year 2012 all villages of population more than 250 are connected by all weather roads.
5.1.5 Since road is the primary mode of transport in state owing to the hilly terrain, the Government has realized that the economic and social impact of road development will reflect on the overall state’s development. In the recent years, the state has aggressively pushed for industrialization in an attempt to develop the secondary sector of the economy. The targeted growth rate of secondary sector for the period 2007-12 is 9.3% per annum as compared to the targeted growth rate of 7.5% per annum for the primary sector.
5.1.6 A need for providing links to the industries and also to the high value fruit and vegetable crop producing areas is therefore vital. The Government has also designed plans, therefore, to up-grade the State Highways apart from the rural connectivity objectives.
41 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
5.1.7 The Government has noted that apart from the development of state road network, maintaining the network to provide good quality roads is vital. Given the mountainous terrain and topographical constraints, the objective of maintaining the quality of road network would be served through considerable financial investments.
5.1.8 Therefore, to summarize, the need for financial resources for the state in the next five years would mainly arise from its rural connectivity targets (to boost primary sector economy), up-gradation of State Highways (to boost secondary sector economy) and from the maintenance requirements of its strategically important roads.
5.1.9 From the perspective of overall financial resource management, the plan notes that being a highly debt stressed state; there is a critical constraint on the ability of the state to generate investments. Therefore, the Government would also aim to reduce the dependency on budgetary resources to increase investments in the road sector.
5.1.10 With an idea of the broad needs of the requirements of funds, a picture of the size of the fund requirements can now be discussed. The allocation of sector resources can be described with respect to types of roads (for eg. State Highways, Rural Roads etc.) and also with respect to the type of requirements (for eg. development/up- gradation, maintenance etc.). However, as clarified in the previous chapters, the Ministry of Shipping, Roads Transport and Highways (GoI) is responsible for resource generation and allocation of National Highways in the state. Therefore, keeping in mind the scope of the study, National Highways have been kept outside the purview of this chapter.
5.1.11 The size of requirements of financial resources for different types of works and roads is mentioned in the sections below. 5.2 Maintenance Requirements
1. Periodic Maintenance Requirements
5.2.1 Road Lengths for Periodic Maintenance: The cycle of periodic maintenance for State Highways/MDRs is 5-years, so in order to complete this cycle 20% of total State Highways/MDRs road lengths should be considered for periodic maintenance per year. As strategically these roads are important to establish link between other roads (Rural Roads, National Highways, Border Roads etc.), it can be assumed that 20% of SH/MDRs would be considered for periodic maintenance. Considering the priority of the above roads and capacity constraints (in 2005-06 only 700 kms of roads lengths have been maintained under periodic maintenance) it can be assumed that 5% of Rural Roads would be accrued for periodic maintenance each year. Existing road network and roads due for periodic maintenance each year are presented in the table below.
Assumptions SH/MDRs Rural Roads Total Existing Total Road Length (Kms) 4405 20246 24651 Percentage of lengths accruing for 20% 5% Periodic Maintenance (Annual) Road Lengths for Annual Periodic 881 1012 1893 Maintenance (Kms) Source: Stakeholder Consultations, PwC Analysis
5.2.2 It is assumed that there will not be any addition to the road lengths of State Highways and MDRs during the projection period of 10 years. However, there will be addition of
42 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
100 kms in Rural Road network from 5 th year to 10 th years of the projection period due to continuous addition under different schemes of development.
5.2.3 Normative Cost of Periodic Maintenance: The per km cost for periodic maintenance as per Louis Berger Feasibility Study for different class of roads is presented in the table below. As it is difficult to assume which class of roads would be maintained in which year (depends on the traffic and condition of the road network), so it can be assumed that average cost for periodic maintenance is Rs.7,00,000 per km.
Road Class Normative Cost (Rs./ Km) Single Lane 5,00,000 Intermediate Lane 6,75,000 Double Lane 9,75,000 Average 7,00,000 Source: Louis Berger Feasibility Study
5.2.4 As per the discussions with the department, periodic maintenance cost can be divided into materials component and labour component. Material component accounts for 80-85% and labour component accounts for 15-20% of the total periodic maintenance cost. It is assumed that both material and labour component would increase @5% p.a. during the projection period (10 years).
Total Periodic Maintenance Requirements
5.2.5 Considering the above assumptions, the total investment requirements for periodic maintenance would be Rs.1911 Crores in 10 years. Breakup by types road network and total requirement is presented in the graph below.
Exhibit 37: Periodic Maintenance Requirements (2006-16)
Periodic Maintenance Requirements
2500
2000
1500 Rural Roads - 1096
Rs.Crore 1000 1911
500 SH/MDRs - 815
0 Breakup by Types of Roads Periodic Maintenance Requirements
Source: PwC Analysis
43 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
2. Routine Maintenance Requirements
5.2.6 Road Lengths for Routine Maintenance: Ideally lengths due for routine maintenance should be the total road network of the state (24651 kms). But considering the nature of work in routine maintenance, it can be assumed that road lengths considered under periodic maintenance and construction/upgradation would not require routine maintenance for that particular year. Hence, road lengths considered under periodic maintenance and construction/upgradation are subtracted from the total road network to get the net road lengths due for routine maintenance.
5.2.7 Cost Assumptions for Routine Maintenance: As per the discussions with the department (HPPWD), wages of Regular Beldars and Daily Wages Beldars are charged against routine maintenance. Current labour strength of HPPWD is nearly 30,444 (17,179 – Regular Beldars, 13,265 – Daily Wages Beldars). It is assumed that 10% of these labours would do works other than roads and bridges work such as buildings, office works etc. and hence net available labour for routine maintenance would be 27,400 to maintain the road networks due for routine maintenance.
5.2.8 Based on these assumptions per km labour available for routine maintenance would be 1.21 (0.68 – Regular Beldars and 0.53 – Daily Wages Beldars). Annual wages of the Regular Beldars is taken as Rs.120,000 (Rs.10,000 per month assuming all benefits and on the higher side) and annual wages of Daily Wages Beldars is Rs.27,000 (Rs.2250 per month/Rs.75 daily). In addition to the wages of the labour it is assumed that per year per km material cost used in routine maintenance is Rs.15000 (for side drainage/cross drainage work, repairs of pitholes and repairs of sidewalls etc.). During the projection period both the wages and material cost would increase @5% per annum.
Total Routine Maintenance Requirements
5.2.9 Considering the above assumptions total fund requirements for routine maintenance would be Rs.2876 Crores in 10 years. Breakup by types road network and total requirement is presented in the graph below.
Exhibit 38: Routine Maintenance Requirements (2006-16)
Routine Maintenance Requirements
3500
3000
2500
2000 Rural Roads 1500 - 2470 Rs.Crore 2876
1000
500 SH/MDRs - 406 0 Breakup by Types of Roads Routine Maintenance Requirements
Source: PwC Analysis
44 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
3. Special Maintenance
5.2.10 Himachal Pradesh is a hilly state experiencing adequate rainfall leading to land slide/ erosion during rainy season, effecting the road pavement. The state Government undertakes certain extra-ordinary works of the roads damaged due to rain. Currently this type of maintenance is funded through Calamity Relief Fund. As per the discussions with HPPWD, it is assumed that on an average annual expenditure on special maintenance work would be Rs.70 crore per year.
Total Fund Requirements for Special Maintenance Expenditure Per Year Rs.70 Crores Total Fund Required for Special Maintenance for 10 years Rs.700 Crores Source: PwC Analysis
Total Maintenance Requirements:
5.2.11 The Total maintenance requirements for the roads sector in 10 years can be calculated by adding the total periodic maintenance requirements, routine maintenance requirements and special maintenance requirements. On the basis of the calculations presented above, the total maintenance requirement for the state road networks is estimated to be Rs.5487 crores . Breakup by types of maintenance and total maintenance requirements are presented in the graph below.
Exhibit 39: Total Maintenance Requirements (2006-16)
Total Maintenance Requirements
6000
Special 5000 Maintenance-700
4000 Routine Maintenance-2876 3000 5487 Rs.Crore 2000
Periodic 1000 Maintenance-1911
0 Breakup by Types of Maintenance Total Maintenance Requirements
Source: PwC Analysis
5.3 Construction/Upgradation Requirements of SH/MDRs
State Highways/Major District Roads
5.3.1 Construction/upgradation requirements of State Highways/MDRs are projected based the outcome of feasibility study of Louis Berger and on the basis of certain assumption discussed with the HPPWD.
1. Upgradation of World Bank Funded 443 kms of SH/MDR
5.3.2 As per Louis Berger Feasibility Study 443 kms of State Highways/MDRs have been identified under World Bank Assistance projects for different types of
45 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
construction/upgradation works. Depending on the types of work break up of road lengths with their respective costs are presented in the table below.
Road Class Kms Type of Work Cost (Rs.Cr./Km) Total Cost (Rs.Cr.) Double Lane 294 Widening of Roads 2.00 588 Intermediate Lane 113 Widening of Roads 161.26 Draman to Shihunta 23 2.12 48.76 Kumarhatti to Nahan Dosarka 73 1.25 91.25 Bharwain to Durgain 17 1.25 21.25 Double Lane (In Stages) 36 Staged Construction 1.36 49.00 A. Total Base Cost 443 798.26 B. Physical Contingencies (3% of A) 23.95 C. A+B 822.21 D. Construction Supervision (2.5% of C) 20.55 E. Escalation (7% of C) 57.55 F. C+D+E 900.32 G. Land Acquisition Cost 50 H. Utilities and Environment Clearances (1% of F) 9.00 I. Total Fund Requirement for Construction/Upgradation of 443 Kms. 959.32 Sources: Louis Berger Feasibility Study, Stakeholder Consultation - HPPWD
2. Upgradation of 838 kms of SH/MDR in next 10 years
5.3.3 A total of about 944 kms of roads have been found to be taken up under various construction options in the three zones, viz., Shimla, Mandi and Dharamsala. Out of this, 106 km of roads have been selected under the ‘Overlay Option’ (which is already considered in periodic maintenance). So, 838 kms (944-106) of roads (other than 443 kms) needs to be upgraded as per feasibility study. It is assumed that this work will be completed in next 10 years. As feasibility study per km cost of upgradation work under this category would be Rs.1 crore.
Total Fund Requirements for Upgradation of 838 kms Roads for Upgradation 838 kms Average Cost Per Km Rs.1 Crore Period for completing the work 10 years Total Upgradation cost in 10 years Rs.838 Crores Source: Louis Berger Feasibility Study, Stakeholder Consultation- HPPWD
3. Construction of New Roads: 50 kms in next 3 years
5.3.4 The new alignment between Swarghat to Bilaspur (about 20 km proposed length) would result in savings of about 21 kms in distance (as compared to the existing distance), and this alignment was found to economically viable. In addition to that, we are assuming 30 kms of more new construction requirement in different part of state. So, the total lengths need to be considered under new construction is 50 kms. Considering the saving of vehicle operating costs and economical viability, it is expected that these roads will be constructed in next three years. As per our discussion with HPPWD and LB Feasibility Study per km construction cost would be around Rs.3.5 crores.
Total Fund Requirements for New Construction 50 kms Construction of New Roads between Swarghat to Bilaspur 20 kms Construction of Other New Roads 30 kms Total New Construction 50 kms Average Cost Per Km Rs.3.5 Crore Period for completing the work 3 years Total Cost of New Construction Rs.179 Crores Source: PwC Analysis
46 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
4. Upgradation of 100 kms of State Highways/MDRs per year
5.3.5 After completing the upgradation of World Bank Funded 443 kms in 2011-12, it can be assumed that 100 kms of SH/MDRs roads which are not considered under the feasibility study would be due for upgradation. Upgradation of these roads would start after 2012. Considering the priority of the above roads (443 kms, 50 kms and 838 kms) and capacity constraints, it is assumed department will start upgradation of these roads after 2011-12. As per our discussion with HPPWD, it is assumed that per km upgradation cost would be Rs.1 crore.
Total Fund Requirements for Upgradation of 250 kms Total Roads Lengths due for Upgradation 100 kms Average Cost Per Km Rs.1 Crore Average Cost per year Rs.100 Crores Total Upgradation Cost (2012-2016) Rs.400 Crores Source: PwC Analysis
Total Funding Requirements for Construction/Upgradation of State Highways/MDRs
5.3.6 Based on the above assumptions total funding requirements for construction/upgradation of SH/MDRs in 10 years would be Rs.2526 crores .
Total Fund Requirements for Construction/Upgradation Construction/Upgradation of 443 kms Rs.959 Crores Construction/Upgradation of 838 kms Rs.838 Crores Construction/Upgradation of 50 kms Rs.179 Crores Construction/Upgradation of 400 kms Rs.400 Crores Total Cost in 10 years Rs.2526 Crores Source: PwC Analysis 5.4 Construction/Upgradation of Rural Roads:
1. Construction of Rural Roads for New Connectivity under Bharat Nirman & PMGSY
5.4.1 The primary target of the State Government as per the requirements of Bharat Nirman and Pradhan Mantri Gram Sadak Yojana (PMGSY) is to connect the following habitations.
Populations 1000 + 500-999 250-499 < 250 Total No. Habitations to be Connected 149 837 2440 6290 9716 Lengths Proposed to Connect these Habitations (Kms) 21150 Estimated Cost (Rs.Lacs) 583314 Average Cost Per Km (Rs.Lacs) 27.58* Source: Abstract of CNCPL based on census 2001 as on January 2004 (PMGSY) * Average cost per km of roads constructed under PMGSY (stage 1 construction). This cost includes pavements – Rs.20 lacs per km and CD works – Rs.7.58 lacs per km.
5.4.2 As mentioned in the above table, to provide new connectivity to 9716 habitations approximately 21150 kms of additional new Rural Roads needs to be constructed. As per the official records till March 2006; 2681 kms of Rural Roads have already been constructed. So, to connect the remaining habitations 18469 kms (21150-2681) of new Rural Roads lengths required to be constructed. Considering past trend (1362 kms of Rural Roads are constructed in 2005-06 and for 2006-07 department has targeted to complete 1491 kms of roads lengths) and capacity constraints of department/contractors it is assumed that from March 2006 to 2016 (10 years) department would be able to construct 15871 kms of road lengths.
47 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
Total Fund Requirements for New Connectivity Total Lengths to be constructed under Bharat Nirman & PMGSY 21150 kms Lengths Completed till March 2006 2681 kms Remaining lengths to be completed to connect the target habitations 18469 kms Lengths completed in 10 years 15871 kms Average Cost Per Km for New Connectivity Rs.27.58 Lacs Total Upgradation cost in 10 years (Rs.Crore) Rs.4377 Crores Source: Abstract of CNCPL based on census 2001 as on January 2004 (PMGSY), HPPWD (PMGSY Cell) 2. Upgradation of Rural Roads
5.4.3 Assuming the economic activities on exiting and new Rural Roads (providing links to the main network for agriculture/horticulture producers and exporters) it is assumed that each year 500 kms of Rural Road network with increasing lengths by 10% every year would be due for upgradation work. Based on these assumptions, in 10 years approximately 8000 kms (including 4713 kms of Rural Road considered for upgradation under Bharat Nirman) of Rural Road network would upgraded.
Total Fund Requirements for Upgradation of Rural Roads Total Rural Roads Lengths to be Upgraded (including 4713 8000 kms kms under Bharat Nirman) Lengths Upgraded in 2006-07 500 kms Increase in Lengths Per year 10% Cost Per Km (PMGSY/Bharat Nirman) Rs.16 Lacs* Total Cost of Upgradation in 10 years Rs.1275 Crores State Action Plan 2005-06 – Bharat Nirman (pmgsy.nic.in), HPPWD * Rs.14 lacs – Pavements + Rs.2 lacs – CD Works
Total Funding Requirements for Construction/Upgradation of Rural Roads
5.4.4 Based on the above assumptions total funding requirements for construction/upgradation of Rural Roads for 10 years would be Rs.2526 crores .
Total Fund Requirements for Construction/Upgradation of Rural Roads – 10 years Construction of Rural Roads for New Connectivity Rs.4377 Crores Upgradation of Existing Roads Rs.1275 Crores Construction/Upgradation under RIDF Rs.824 Crores Total Construction/Upgradation Cost Rs.6476 Crores Source: PwC Analysis
5.5 Administrative Expenditure Requirements
5.5.1 Expenditure on Administration is also an integral component of the total funding requirements for the road sector. Based on the historical expenditure in administrative activities an annual escalation of 10% per annum is assumed to project the requirements. Using this assumption, the total requirements for administrative expenditure is estimated to be Rs. 2051 crores .
48 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
5.6 Overall Funding Requirements for Construction/Upgradation and Maintenance of SH/MDRs & Rural Roads:
Total Funding Requirements for State Highways/MDRs
5.6.1 Considering both maintenance and construction/upgradation total funding requirements for SH/MDRs for 10 years would be Rs.3746 crores.
Exhibit 40: Total Funding Requirements – SH/MDRs (2006-16)
Total Funding Requirements - SH/MDRs
4000
3500
3000 Construction & Upgradation 2500 Requirements - 2000 2526 3746 Rs.Crore 1500
1000 Maintenance Requirements - 500 1220 0 Breakup of Funding Requirements Total Fund Requirements - SH/MDRs
Source: PwC Analysis
Total Funding Requirements for Rural Roads
5.6.2 Considering both maintenance and construction/upgradation total funding requirements for Rural Roads for 10 years would be Rs.10042 crores.
Exhibit 41: Total Funding Requirements – Rural Roads (2006-16)
Total Fund Requirements - Rural Roads
12000
10000
8000 Construction & Upgradation 6000 Requirements-6476
Rs.Crore 10042 4000
2000 Maintenance Requirements-3567
0 Breakup of Funding Requirements Total Fund Requirements - Rural Roads
Source: PwC Analysis
49 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
Overall Funding Requirements for all Roads
5.6.3 Considering maintenance, administrative expenses and construction/upgradation total funding requirements for all Roads for 10 years would be Rs.16539 crores.
Exhibit 42: Total Funding Requirements – All Roads (2006-16)
Total Fund Requirements - All Roads
18000
16000 Administrative Expenses Requirements-2051 14000
12000 Construction & 10000 Upgradation Requirements-9001 8000 16539 Rs.Crore
6000
4000 Maintenance 2000 Requirements-5487
0 Breakup of Funding Requirements Total Fund Requirements - All Roads
Source: PwC Analysis
50 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
6 Potential Sources of Funds
6.1 Projected Availability of Funds from Existing Sources
6.1.1 In the previous chapter, an estimate was given for the requirement of investments in the state road sector in the immediate 10-years time frame. This section attempts to indicate the estimate of fund availability for the state road sector in the 10 year time frame. As explained earlier, the predominant sources of funds (excluding National Highways) include:
a) Consolidated Fund of the State b) Ministry of Rural Development (PMGSY)
6.1.2 The consolidated fund of the state includes various borrowings that the state undertakes to fulfil its requirements. This fund also includes the grants-in-aid that the state receives to finance the plan as well as non-plan expenditures. Apart from this, the state’s own revenues are used to finance the maintenance and other expenditures related to the road sector. The following assumptions are used to estimate the size of funds that would be available for the state road sector.
Description of Funding Source Assumption The total 11 th five year plan outlay (2007-2012) for Road Sector is estimated to be approximately Rs. 1700 Central grants-in-aid for financing State crores. 90% of this amount would be grants and 10% Plan would be state borrowings. A markup of 5% annual is used to calculate the availability of funds for the period 20012-17. As per the recommendations of the 12 th finance Additional Finance Commission commission, Rs. 65.41 crores per annum would be Assistance to HP for Road Maintenance granted for financing maintenance in road sector till the year 2010. Historic trend of non-plan financing is used to estimate Non-Plan Financing from State Revenues the total fund availability Historical trends and the targets of PMGSY are used to PMGSY estimate the total fund availability
6.1.3 Using the above assumptions, the table below shows the approximate availability of funds for the road sector in the time frame 2006-16.
Exhibit 43: Availability of Fund for the Road Sector (2006-16) Availability of Funds (2006-16) Rs. Crores Percent Share Central Plan Assistance Grants 2692.5 21% Central Road Fund Allocations 165.0 1% TFC Grants for Maintenance 261.6 2% State's Revenues Allocation for Non-Plan Activities 3354.6 27% RIDF Borrowings (mainly NABARD) 823.5 7% World Bank Assistance 959.0 8% Ministry of Rural Development (PMGSY) 4377.2 35% Total 12633.6 100% Source: PwC Analysis
6.1.4 The table above clearly indicates that the available funds with the State Government as per the current estimations in the 10-year time frame would be approximately Rs.
51 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
12633 crores. For construction/upgradation of SH/MDRs World Bank is providing assistance of Rs. 959 crores.
6.2 Road User Charges as a Potential Source of Funds
6.2.1 The current sector financing doesn’t ensure earmarking of Road User Charges for funding the road sector needs. However, it is important to analyse the scenario where road user charges can become a potential source of funding for the sector. Therefore, it is necessary to project the size of Road User Charges collections in the future 10-year horizon.
6.2.2 All the road user charges are being paid by different types of vehicles in the state and therefore the total collections of road user charges must exhibit some relationship with the number of vehicles. This section aims to project the Road User Charges collection by establishing a relationship between the total vehicles registered in the state and the total road user charges collected.
6.2.3 To estimate the quantitative relationship between the above two variables, regression analysis was used. Since the total road user charges collected is dependent on the number of motor vehicles, it was assumed that the number of vehicles is the independent variable (denoted as x), and the total road user charges collected is the dependent variable (termed as y).
6.2.4 Regression was carried out by taking past trend of vehicle fleet and road user charges. The relationship is shown in the chart presented below.
Exhibit 44: Correlation between road user charges and vehicle
700
600 Y = 0.0015X - 34.247 500
400
300
200
Road User Charges & 100Taxes Co -efficie nt of correlation: 92% 0 0 50000 100000 150000 200000 250000 300000 350000 400000 450000 Motor Vehicles
Source: PwC Analysis
6.2.5 It is observed that there is a high correlation between these two variables (co-efficient of correlation was found to be 92% ). Therefore it can be concluded that with increase with vehicle fleet road user charges will increase.
6.2.6 The quantitative relationship between the above 2-variable was found as Y=.0015 X- 34.247. This means that roughly, if the number of vehicles registered in the state (X) increases by 1000 in a particular year, the approximate increase in Total Road User Charge collection can be expected to be Rs. 1.5 crores (1000 multiplied by .0015). It
52 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
should however be noted that these are rough approximations and can be used as an indication of the magnitude of user charge collections.
Future Projections of Road User Charges Collections and Motor Vehicular Fleet
Assumptions
6.2.7 It was established in the previous section that the total road user charges collected are highly correlated with the number of motor vehicles registered in the state. This section aims to roughly indicate the future expected population of vehicles in the state and therefore the expected collections in the form of road user charges
6.2.8 It is observed that the vehicular fleet in the state is directly proportional to state’s economy growth. The population of vehicular fleet is highly correlated with the State’s GSDP and Per Capita Income. This when translated in simplified terms, means that the vehicular population follows the trend similar to the State GSDP and Per Capita Income.
6.2.9 Therefore to estimate the expected population of motor vehicles, it is important to estimate the direction and the growth rate of State’s GSDP and the per capita income.
6.2.10 Using the above assumptions, a model that correlates the state’s GSDP and per capita income with vehicular fleet was developed for 3-different growth scenarios. The Twelfth Finance Commission in their analysis estimated that the state can grow at an annual rate of 12% (in current prices) in the next 5-years. A more optimistic scenario would mean that the state can over-achieve the expectations of the finance commission. On the basis of optimistic and pessimistic expectations, state’s economic growth rates were assumed. The growth rates assumed for the 3- scenarios are mentioned below.
a) High Growth Scenario: State’s GSDP grows at an average Cumulative Annual Growth Rate (CAGR) of 13.5% (in current prices).
b) Medium Growth Scenario: State’s GSDP grows at an average (CAGR) of 10.5% (in current prices)
c) Low Growth Scenario: State’s GSDP grows at an average (CAGR) of 7.5% (in current prices)
Projection Results
6.2.11 Using the above assumptions and after co-relating the vehicular population with GSDP and state Per Capita Income, a snapshot of approximate expected vehicular population in a 10-year time frame is presented below.
Exhibit 45: Projected Vehicle Ownership Projected Total Vehicular Population(in ‘000) 2007 2012 2016 High Growth Scenario 444 775 1212 Medium Growth Scenario 419 637 890 Low Growth Scenario 396 523 652 Source: PwC Calculations
6.2.12 Therefore, using the above projections, the approximate estimations of the projected revenues in the form of total road user charges is presented below.
53 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
Exhibit 46: Projected Road User Charges (2006-16) (Rs. Crores) Projected Total Road User Charges Collections (Rs. Crores) 2007* 2012 2016 High Growth Scenario 665 1163 1817 Medium Growth Scenario 629 956 1335 Low Growth Scenario 595 784 978 Source: PwC Calculations *These are calculated from past road user charges and therefore can be slightly different than the actual collections.
6.3 Policy Frameworks to promote Road Sector Development
6.3.1 The box below indicates some of the measures that are being taken by other states to generate extra revenue from the road sector.
Generating Extra Revenue
Some states levied additional tax on road users in various ways to generate extra revenue for the road development: Uttar Pradesh: Entry tax of 4 per cent on value of goods brought in state territory. Additional sales tax of 4 per cent on diesel and 6 per cent on petrol for road sector. Maharashtra: Cess of Rs.1 per litre on petrol and diesel. West Bengal: Cess of Rs.1 per litre on petrol and diesel Madhya Pradesh: Surcharge of 15 per cent on petrol and diesel Source: Highway Sector Financing in India, WB, Secondary Research
6.3.2 However, in this context it must also be remembered that the current policy framework doesn’t ensure that the road users charges collected in the state are being used to fund the state road sector (presently the user charges are not earmarked for the road sector). Therefore, it is difficult to ascertain whether the revenues generated from the road users can be used to estimate the expected levels of expenditure in the road sector.
6.3.3 Various states in India as well as some countries abroad have taken well defined policy initiatives to push road sector development. A snapshot of some of the benchmark recent policy initiatives and their description is presented below.
States/Countries Policy Initiatives for Road Sector Development Tamil Nadu Rural Road Fund was set up by Government of Tamil Nadu by amending Motor Vehicles Act. The objective of this road fund is to emphasis on maintenance related work and to generate revenue for the same. The road fund is created in view of fiscal stringency, funds required for road maintenance and up-gradation not likely to be available from normal budgetary sources. The sources for the road fund are: Transfer from CRF, Existing Rural Road Fund, and Fuel cess/levy of Rs 1/lit. on petrol and Rs 0.50/lit. on diesel, Sales tax on fuel and vehicle road tax and Special levies on vehicles and spares. Of the fund Tamil Nadu 70% would be deployed towards the maintenance of roads, 20% would be used for leveraging fund from the private sector and 10% would be used for project development, capacity building and road safety. In order to catalyze private sector participation and investment in road sector and mandated to initiate commercialization of operations and maintenance of road assets, Government has set up Tamil Nadu Road Development Company Ltd (TNRDC) a 50: 50 joint venture between TIDCO and Infrastructure Leasing & Financial Services Ltd (IL&FS). The Government of Kerala has set up a State Road Fund as per the Kerala Road Fund Act 2001. The objective of setting up the Road Fund is to finance the Kerala routine, periodic maintenance, development of existing network and construction of new network. Kerala Road Fund enable the Government to collect higher user
54 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
charges through tolls and other levies. These funds are in addition to the state share from the Central Road Fund. The objective of setting up road fund in the state is to fund maintenance expenditure. Sources of fund for the road fund are increase in sales tax on petrol (from 14 to 20%) and diesel (from 16 to 20%). Fund collected in this way is Uttar Pradesh: dedicated only for maintenance of work. Current accruals are estimated to be about Rs 4 billion. Consequently, there has been a significant increase in allocations for road maintenance. In order to enable the road development projects through private sector Maharashtra participation Government of Maharashtra amended the Bombay Motor Vehicle Tax Act, 1952 to enable toll collection by private players. In order to facilitate private sector participation in road sector, Government has amended the Indian Tolls (MP) Act, 1932, which permits the levy of toll on newly constructed as well as improved road and bridges. Also Government has Madhya Pradesh passed Highway Bills, 2001 to improve village connectivity, development of existing network, development of urban roads, creation of road maintenance fund and to encourage private sector participation in the road sector. Karnataka Government framed a Road Development Policy in order to improve the road infrastructure in the state over the 1998-2012 periods. The main objectives of this policy expand capacity and improve quality of the State Karnataka Highways. The policy also encourages private sector participation in developing road infrastructure. Of the total fund allocated to PWD for repairs and maintenance, 80% is earmarked for resurfacing. In 1996 Government has set up a separate road fund by amending Transit New Zealand Amendment Act called Transfund Zealand (Transfund). Government decides the charges which determines the inflow of road fund but outflow is managed by road fund. The revenue of the fund comes from (i) a fuel excise New Zealand added to the price of gasoline; (ii) weight-distance charges paid by diesel vehicles; (iii) motor vehicle registration fees (iv) interest earned on the road fund account; (v) revenues earned from sale of surplus property; and (vi) refund of GST (the NZ equivalent of VAT). The main objectives of the board are to “allocate resources to achieve a safe and efficient roading system”. The Indian Central Road Fund (CRF) was created as per the Central Road Fund Act 2000. The objective of the fund is to augment the capacity of National Highways, improving State Highways, and providing access to unconnected habitations with all weather roads. The present sources of funding for CRF an additional cess (currently Rs. 2 per litre on Petrol and Diesel) levied on petrol and diesel production and imports. The allocations of the receipts are statutorily India predetermined. 50 percent of cess collected on diesel allocated to Rural Road development (PMGSY), the balance 50% of the cess on diesel and entire amount collected on petrol is distributed on; 57.5% goes for construction & maintenance of the National Highways under NHDP, 12.5% for construction of Rail & Road over bridge, 27% for construction & maintenance of State Highways and 3% for the construction of inter state & economically important road. The United States established the Highway Trust Fund in 1956 to finance the inter-state highway network and highway projects. The funding system involved earmarking certain road-related taxes and depositing them into a special account and the qualifying expenditure may be limited to highway construction, maintenance and operation, or may be used for other transportation modes such United States as mass transit, rail, etc. (as per the above amendments). Trust Fund revenues are derived from (i) motor fuel taxes on gasoline, diesel, and gasohol; (ii) a graduated tax on tires weighing 40 lbs. or more; (iii) a retail tax on selected new trucks and trailers; (iv) a heavy-vehicle use tax on all trucks with a gross vehicle weight (GVW) over 55,000 lbs; and (v) interest on the Trust Fund balance. Tax rates are adjusted as part of the regular budgetary process.
6.3.4 However, currently there are no such well defined state policy initiatives in HP that cater to the specific needs of road sector.
55 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
7 Gap Analysis
7.1 Projected Funding Gap from existing Sources
7.1.1 The gap in funding can be estimated by comparing the requirements in investments and the availability of funds. From the above analysis, it is expected that the state Government would face a funding gap of approximately Rs. 3906 crores in the time frame 2006-16. This means that the current resources can fulfill around 76% of the total fund requirements. However, there are various risks associated with the fund availabilities which are highlighted later. The graph below summarizes the funding gap.
Exhibit 47: Expected Funding Gap (2006-16)
Funding Gap in 10 Years
18000 16539 16000 Funding Gap = 3906 14000 12634 12000
10000
8000 Rs.Crore
6000
4000
2000
0 Total Fund Requirements Total Fund Availability from Existing Sources
Source: PwC Calculations
7.2 Projected funding Gap from Funding through Road User Charges
7.2.1 The previous chapters indicated that the total expenditure in the road sector always exceeded the total road user charges. When translated, it could mean that if road user charges collected from the road users are the only source of funding for the sector then in such a case they would be able to fund nearly 70% of the total expenditure on road sector.
Exhibit 48: Road User Charges as a % of Total Expenditure Road User Charges as a % of Total Expenditure 2002-03 2003-04 2004-05 2005-06 Total Road User Charges (without Fuel Cess) collected as a %age of Total Expenditure* in State 70% 65% 81% 71% Road Sector *Includes expenditure on National Highways also
7.2.2 Estimations of approximate revenue collections from user charges were indicated in previous chapter. If a comparison of the user charges is made with the requirements of funds, it can be clearly seen from the exhibit below that the user charges
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(excluding those paid by non-road users) would still be in-sufficient to bridge the funding gap.
Exhibit 49: Expected Funding Gap using Road User Charges (2006-16) Funding Gap Using Road User Charges 18000 16539 16000
14000 Funding Gap = 9278 Funding Gap = 7673 Funding Gap = 5663 12000 10876
10000 8866 Rs.Crore 8000 7261
6000
4000
2000
0 Low Growth Scenario Medium Growth Scenario High Growth Scenario Total Fund Requirements
Source: PwC Analysis
7.2.3 Even under high growth scenario of collections / revenues from road user charges and assuming 100% of this is made available to the sector a funding gap of nearly Rs.5663 crores would still exist.
7.3 Combination of Road User Charges and Existing Sources
7.3.1 The share of funding available through state’s own revenues forms around 27% of the total fund availability from existing sources. If we assume a base case scenario of medium economic growth, and take out the state’s contribution in total fund availability, then it would be interesting to analyse the percentage of total road user charges collection that needs to be put in to bridge the projected funding gap.
7.3.2 The analysis indicated that 82% of the Total Road User charges needs to be put in combined with the Total Fund Available (excluding State’s contribution of 27% to the total), then such a combination would be sufficient to bridge the funding gap.
Exhibit 50: Funding Gap through combination of Sources (2006-16)
Combination of Road User Charges & Existing Sources
18000 16000 14000 12000 9280 10000 8000 16539 Rs.Crore 6000 4000 7260 2000 0 Fund Availability Without State's Total Fund Requirements Contribution + 82% of Total RUCs (Medium Growth)
Source: PwC Analysis
57 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
7.4 Key Issues
7.4.1 High Borrowings might be un-sustainable: The State Government’s borrowings from NABARD form a significant share in the total fund availability (around 12% of the total fund). As explained earlier, the total outstanding debt liabilities of the State are close to Rs. 19,000 crores and additional borrowings from NABARD will therefore pose a great risk on it’s fiscal management as servicing such a high debt will be a big constraint.
7.4.2 Maintenance would be under-funded: An analysis of the present policy framework indicates that the current scenario promotes scheme based funding rather than need based funding. Extending this argument, the funding followed currently ensures that maintenance of the state roads are being funded only from state’s own resources. There are no schemes/policies that dedicate a sustainable source for funding maintenance of state roads.
7.4.3 Assuming that the same policy framework continues, in such a case the table below clearly indicates that maintenance of state roads would be pushed to the back and would largely remain under-funded (state resources would be able to fund around 48% of the total maintenance needs in the 10-year horizon).
Exhibit 51: Funding Gap for Maintenance for the time frame 2006-16
Funding Gap for Non- Plan Activities
8000 7538
7000
6000 Funding Gap = 3922 5000
4000 3616
Rs.Crore 3000
2000
1000
0 Funding Available from Non Plan Total Non Plan Requirements (Maintenance + Administrative Expenses)
Source: PwC Calculations
58 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
8 Key Issues and Way Forward
8.1 Low current emphasis on state highway network and needs
8.1.1 The current sector financing doesn’t address specific requirements of State Highways. The fund allocation to address new development/up-gradation needs of State Highways has remained low when compared to allocations for Rural Roads or for National Highways. Also, the present sector funding makes the state dependent on external sources borrowings to fund the maintenance needs of State Highways.
8.1.2 The SOS Study indicated around 75% of State Highway networks carry more traffic compared to their capacity and therefore need urgent up-gradation. This requires huge capital investments and the low emphasis paid to such needs result in postponement of such urgently required works.
8.2 Dedicated and directed funding for specific requirements
8.2.1 In the context of HP State it must be noted that owing to it’s hilly terrain, the average cycle time for a particular road network needing maintenance is lesser compared to other areas in the plain. Whereas various schemes are in place to promote new development/ up-gradation of roads in the state, no specific focused scheme is in place to fulfil maintenance needs. It is also not possible to divert funds from specified schemes to other activities as and when the need arises.
8.2.2 The road sector currently lacks dedicated and directed funding for sector specific requirements. There are specific dedicated schemes put in place to fund the capital requirements for National Highways and Rural Roads. However, no such dedicated funding is present to address the requirements of maintenance for state road networks.
8.3 Huge Funding Gap
8.3.1 The previous chapter estimated that the total sector requirements in the near 10 years time frame is of the order of Rs. 16,539 crores compared to the possible availability of funds to the tune of Rs. 12634 crores. This leaves the state with an estimated funding gap as huge as Rs. 3906 crores.
8.3.2 An added problem is the nature of funding availability. We have assumed that the state will continue it’s borrowings from NABARD at the same pace. However, the risk of servicing debt might not allow this in future (especially after the implementation of the 6th Pay Commission) and which would eventually increase the funding gap further. 8.4 Lack of sustainable source of funding
8.4.1 The total outstanding debt liabilities of the State are close to Rs. 19,000 crores compared to the GSDP of around Rs. 20,000 crores (in 2005) which clearly indicates that the State is highly debt-stressed. This high level of debt limits the capability of
59 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
state to service the debt. The Planning Department of the State estimates that the existing interest burden would be more than Rs. 1700 crores per annum.
8.4.2 The chart below indicates the Debt/GSDP ration of some special category states and some other developed states in India (for 2004-05) clearly indicating that Himachal Pradesh is in an alarming debt stressed situation, compared to rest of the states.
Exhibit 52: Debt/GSDP Ratio – Comparison of Indian States
90
Himachal Pradesh 80
70
60 Arunachal Pradesh, Uttaranchal 50 Jammu & Kashmir, Meghalaya 40 Tripura, Assam, Nagaland
Debt/GSDP Ratio Debt/GSDP Maharashtra, Andhra 30 Pradseh, Madhya Pradseh Delhi, Tamil Nadu, 20 Haryana, Karnataka
10
0
Source: RBI State Finance Study 2005-06
8.4.3 As a result any further increase in debt would be alarming and therefore this causes the State to be dependent on Central grants-in-aid for financing the State Plan’s and non-plan expenditure. Also a big problem that can probably ruin the current levels of fiscal management is the likeliness of the announcements by the 6 th Pay Commission which can disrupt the fiscal situation.
8.4.4 In such a scenario, road sector can suffer as the state would attach priorities to its prior committed liabilities and political obligations. Also due to limitations on State Government’s borrowings (as per the 12 th Finance Commission recommendations) it is likely that market borrowings can be severely limited and sources of financial resources like NABARD may be reduced. This situation, therefore, calls for a more defined and a sustainable source of revenue generation for the road sector.
8.5 Limited flexibility of allocation for the road sector
8.5.1 The financial resource allocation for the road sector forms a part of the resource allocation of economic services in the overall state budgetary allocations. The table below indicates briefly the trend of state’s resource allocation for the past few years:
60 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
Exhibit 53: Allocation of Funds to State Sector
120%
100%
80%
60%
40% Percent Share Percent
20%
0% 2000-01 2001-02 2002-03 2003-04 2004-05
General Services Social Services Economic Services
Source: HP – State Budget
8.5.2 It can be clearly noted that the importance of economic services has been low compared to social services spending and general services spending. It is fairly understood that the Government has various social and political obligations, which can probably explain the high priority levels attached to social sector. Since the allocation mechanism has to strike a balance between all the political liabilities and obligations, there exists a limited freedom for the road sector to stretch allocations for the sector.
8.6 Need for alternative financing sources
8.6.1 We have already discussed that some states have taken special policy initiatives like levying an additional cess on fuel, levying an entry tax, creating a dedicated road fund etc., to fund the specific needs of road sector.
8.6.2 The share of Road User Charges returned to the road sector has shown a decreasing trend. The fiscal health of the state would not allow the state to continue the present level of borrowings. In such a case, some alternative financing sources needs to be developed to achieve financing independence.
8.7 Need for alternative models for development and financing of the network - PPPs
8.7.1 Public Private Partnerships (PPP’s) enhance the sector delivery and also eases the cash flow management for the state. Given the resource challenges faced by the state Government, it would be important for the state to have appropriate structuring and enabling PPP mechanisms, whereby the private sector is able to take-on the largest share of risks in developing road projects. 8.8 Way Forward
8.8.1 If all the issues highlighted in this report were to be summed up, it can be pointed out that presently, road sector as such doesn’t have a dedicated source of finance. The sector is dependent on the limited share from the overall state’s consolidated fund.
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8.8.2 In a scenario, where fiscal situation of the state is un-healthy it may not be possible for the state to continue the present borrowing levels. The implementation of 6 th pay commission is further likely to worsen the fiscal health which would have a direct impact on road sector funding. The Government, in all likeliness, would be expected to fund it’s social and political commitments than providing funds for the road sector.
8.8.3 Considering the fact that road sector directly impacts social and economic development of the state, if the sector needs are assessed the road sector requires a huge investment in the coming years. All of the above situations, put together, demonstrate and define the financial problem that the road sector faces in the state.
8.8.4 We have already indicated the Approach and Methodology for delivering the scope of work in the Inception Report. This Assessment report defines the sector financing problem and also indicates some of the potential sources from where funds can be raised for the sector. Various other states in India have taken some policy initiatives to ensure dedicated funds for the sector. In this context the relevant options that would help the state to address the financing issues would be generated and evaluated in the next stage of the study. Also, a draft implementation plan for the preferred option would be presented in the next stage.
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ANNEXURE A: LIST OF PEOPLE MET
Name Designation Department Mr. Subhash Negi, IAS Principal Secretary to the GoHP PW Mr. S.P. Negi Engineer-In-Chief HP-PWD Mr. Arvind Mehta, IAS Secretary to the GoHP – Finance & Planning Finance & Planning Mr. D.K. Sharma Principle Advisor (Planning) Finance & Planning Mr. Arun Sharma CE- cum - Project Director HPPWD Mr. Bhawan Sharma Ex. Eng. HPPWD Mr. Raujif Sheikh Asstt. Eng. HPPWD Mr. Kulbir Asstt. Eng. HPPWD Mr. Kaushish Research Officer Economics & Statistics Mr. Lalit Thakur Add. Secretary Transport Mr. Naresh Sharma Asst. Transport Mr. B.K. Verma Asst. Controller (F&A) Transport Mr. Hemant Shushil Asst. Commissioner (Technical) Transport Mr. S.K.B.S. Negi Excise and Taxation Commissioner Excise & Taxation Mr. B.D. Pathak Jnt. ETC Excise & Taxation Mr. Mohan Lal Asst. ET Excise & Taxation Mr. Lekh Raj Hira F & A HPPWD Mrs. Asha Seraik F & A HPPWD Mr. M.L. Chouhan F & A PMGSY Mr. B. B. Kalra S.E. PMGSY Mr. O. P. Sharma E.E (D) Projects NABARD + CRF Mr. Ramesh Verma Under Sec. (Finance) Finance Mr. Baldev Thakur Section Officer Finance Mr. Anil Kapil GM HPRIDC Mr. Rakesh Sharma Officer Finance Mr. P.L. Sharma Section Officer CAG Mrs. Sukhvarsha Gandhi Section Officer CAG Mr. D.R. Bhusari Jt.Director - Planning Planning Department Mr. Bhartendu Kapoor EE (Planning) HPPWD Mr. Ratesh Kumar SE - Works HPPWD Mr. Roshan H.D.M. (Planning) Planning Cell - PWD Mr. H.K. Singh Section Officer - Planning Planning Department Mr. Ajay Garg EE – Division I HPPWD Mr. Sanjay Negi Officer Transport Department Mr. Pradeep Thakur SDO HPPWD (PMGSY) Mr. Pradeep Kumar Junior Draftsman HPPWD Mr. Satish Kumar Contractor Mr. Naresh Contractor Mr. Pramod Sood Contractor
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ANNEXURE B: OVERALL STATE FINANCIAL RESOURCES
Receipts (Rs. Crores) 2000-01 2001-02 2002-03 2003-04 2004-05 Tax on Revenue 729 916 890 984 1257 Non-Tax Revenue 177 198 175 292 611 State's Share of Union Taxes 330 325 346 450 537 Grants in aid 1810 2277 2248 2255 2235 Total Revenue Receipts 3046 3716 3659 3981 4640 Capital Receipts (Borrowings/Public Debt + Recovery of Loans) 1584 1617 2228 3790 2703 Total Receipts in Consolidated Fund of HP 4630 5333 5887 7771 7343 Public Account Receipts 3878 3733 4156 5033 5030 Total State Receipts 8508 9066 10043 12804 12373
Expenditure (Rs. Crores) Revenue Expenditure 4329 4576 5141 5588 5793 Non Plan Expenditure 3047 3374 3755 4748 4815 Plan Expenditure 1282 1202 1386 840 978 Capital Expenditure 589 680 888 805 678 Non Plan Expenditure (disbursement of loans) 40 30 28 6 25 Plan Expenditure 549 650 860 785 654 Total Revenue Expenditure 4918 5256 6029 6393 6471 Repayment of Public Debt 414 164 684 1855 1659 Total Consolidated Fund Disbursements 5332 5420 6713 8248 8130 Public Account Disbursements 3164 3546 3462 4789 4027 Total State Disbursements 8496 8966 10175 13037 12157
64 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
ANNEXURE C: FUEL CONSUMPTION
Fuel Consumption (In '000 KL) Year 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Petrol 64.8 66.2 74.3 78.4 78.4 82.4 Diesel 350.4 336.1 340.9 339.7 352.8 377.9
Source: Ministry of Petroleum and Natural Gas
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ANNEXURE D: RATES OF TAXES ON VEHICLES
Taxes on Passenger Vehicles (Rs) Vehicle Class Seating Capacity Annual Rate Maxi Cab 7 - 8 8785 9 - 12 5856 Taxi, Car or Jeep Upto 6 Premier/Maruti/Gypsy Maruti/Maruti/Ambassdor 1464 Contessa/Maruti 1000/NE-118 and any other indigenous Car of this category. 2636 Imported Car 3367 Scooter Rickshaw 3 363 363 + 121 for More than 3 additional seats Source: Department of Transport
Taxes on Goods Loading Capacity (Quintals) Annual Rate (Rs) Less than 10 847 10-20 1694 20-30 2541 30-120 4840 Above 120 8470 The rate increases by 10% every year w.e.f. 1st April Source: Department of Transport
Categories Toll Rates (Rs) Private Light Motor Vehicles, Jeep, Car, Van 30 Public Light Motor Vehicles, Taxi, Maxi Cab etc. 40 Passengers Vehicles upto Seating Capacity of 12 Passengers 40 Passengers Vehicles over Seating Capacity of 12 Passengers 60 Goods Vehicles Above 10 but upto 20 Quintals Loading Capacity 40 Goods Vehicles Above 20 but upto 90 Quintals of Loading Capacity 50 Goods Vehicles Exceeding Loading Capacity of 90 Quintal 60 Source: Excise and Taxation, HP
Vehicle Registration Fee Type of Vehicles Fee (Rs) Light Motor Vehicles Non-Transport (Personal Vehicles) 200 Light Commercial Vehicles (Taxi/ Maxi Cabs) (Contract Carriages) 300 Auto rickshaw 300 Commercial Vehicles (Pickup etc) 300 Medium Goods Vehicles 400 Medium Passenger Motor Vehicles 400 Heavy Goods Vehicles 600
66 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
Contract Carriage/ Stage Carriage Buses 600 Imported Motorcycle 300 Imported Motor Vehicles 800
Issue of Duplicate Certificate of Registration Half of the fee mentioned against each class
Transfer of Ownership Half of the fee mentioned against each class Change of Residence 30 Record Alteration in the Certificate of Registration 50 Endorsing Hire-Purchase/ lease/ hypothecation agreement 100 Cancellation of Hire-Purchase/ lease/ hypothecation agreement or issue of fresh certificate of registration. 100 Conducting test of a vehicle for grant and renewal of certificate of fitness : (i) Two/Three-wheeled vehicle 100 (ii) Light Motor Vehicle 200 (iii) Medium Motor Vehicle 300 (iv) Heavy Motor Vehicle 400 Grant of renewal of certificate of fitness for Motor Vehicle 10 Source: Department of Transport, HP
Licensing Fee Particulars Fee (Rs) In respect of Issue or Renewal of learner's license of each class of vehicle 30 In respect of issue of a Driving License in form 6 40 For test of Competence to drive 50 In respect of addition to other class of vehicle to driving license in form 6 30 In respect of renewal of driving license in for 6 50 In respect of renewal of a driving in form6 to drive a motor vehicle for which the application is made after the grace period 30 Source: Department of Transport, HP
Token Tax Particulars Tax (in Rs.) 1.5% of the price of the Motor cycle/scooters having engine capacity upto 50 c.c. motor cycle/scooter 3% of the price of the motor Motor cycle/scooters having engine capacity above 50 c.c. cycle/scooter 2% of the price of the Personal Motor Vehicles personal motor vehicle Light Goods Vehicle 1500/- per annum Medium Goods Vehicle 2000/- per annum Heavy Goods vehicle 2500/- per annum Taxi Cabs 200/- per seat per annum Auto Rickshaw 150/- per seat per annum
67 Himachal Pradesh Road Sector Finance Study - Final Assessment Report
Maxi Cabs 500/- per seat per annum Contract Carriage Buses 500/- per seat per annum Mini/ Big Buses 500/- per seat per annum subject to maximum of Rs. 35000/- Construction Equipment Light Vehicle 6000/- per annum Construction Equipment Medium Vehicle 9000/- per annum Construction Equipment Heavy Vehicle 12000/- per annum Private Service Vehicle 250/- per seat per annum Source: Department of Transport, HP
Composite Fee Particulars Fee (in Rs.) Vehicles having Seating capacity up to 6 seats 600/- per quarter Vehicles having Seating capacity from 7 to 12 seats 6000/- per quarter Vehicles having Seating capacity more than 12 seats 25000/- per quarter All types of Goods Carriages 5000/- per annum Source: Department of Transport, HP
Special Road Tax (Rs) Category National National State Rural Local Highway Highway Highway Roads Mini Interstate Intrastate (Paise per (Paise Buses (Paise per seat (Paise per seat per per seat (Paise per km) seat per km) per km) per seat km) per km) For roads in Hilly Area. Ordinary 8.04 6.7 5.75 4.79 4.79 Express/Night Service 10.05 8.38 7.19 5.99 - Semi-Deluxe 12.06 10.05 8.63 7.19 - Deluxe 16.03 13.4 11.5 9.58 - A/C Bus 16.03 13.4 11.5 9.58 - For roads in Plains . Ordinary 5.17 4.31 3.96 3.08 3.08 Express/Night Service 6.46 5.39 4.61 3.85 - Semi-Deluxe 7.76 6.47 5.54 4.62 - Deluxe 10.34 8.62 7.38 6.16 - A/C Bus 10.34 8.62 7.38 6.16 - Source: Department of Transport, HP
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