WORLD BANK TECHNICAL PAPER NO. 409 w ~~~wTp4QOq Work in progress for public discussion may 11q9 Public Disclosure Authorized Commercial Management and Financing of Roads Public Disclosure Authorized _~~~~~~~~~~~~~~~~~W. '5 . Public Disclosure Authorized Y. t. ~~~~~fll G;....^t Public Disclosure Authorized i///l (;. 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All rights reserved Manufactured in the.United States of America First printing May 1998 Technical Papers are published to communicate the results of the Bank's work to the development community with the least possible delay. The typescript of this paper therefore has not been prepared in accordance with the proce- dures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data in- cluded in this publication and accepts no responsibility for any consequence of their use. 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Cover photos clockwise from top left: "Road construction in Ghana," Ministry of Roads & Highways; "Labor-based road rehabilitation in Lesotho," Labor Construction Unity, Ministry of Works; "Periodic maintenance in Colombia," Ian G. Heggie; and "Microenterprise road maintenance unit in Colombia," Ian G. Heggie. ISSN: 0253-7494 Ian G. Heggie is a roads adviser and Piers Vickersis a rural transport specialist in the transport division of the World Bank's Transportation, Water, and Urban Development Department. Libraryof Congress Cataloging-in-PublicationData Heggie, Ian Graeme. Commercial management and financing of roads / Ian G. Heggie, Piers Vickers. p. cm. - (World Bank technical paper; ISSN0253-7494; no. 409) Includes bibliographical references (p.). ISBN 0-8213-4237-1 1. Roads-Finance. 2. Roads-Maintenance and repair-Economic aspects. I. Vickers, Piers, 1967- . II. Title. III. Series. HE336.E3H43 1998 388.1'14-dc2l 98-19383 CIP Contents Foreword v Abstract vi Abbreviations vii Acknowledgments viii Overview 1 Part I. Background 5 1. Introduction 7 2. The State of the Road Sector 9 The Importance of Roads and Road Transport 9 The Impact of Poor Road Maintenance 11 Past Efforts at Reform 14 Regional Programs 15 Part II. The Basic Issues 17 3. A Diagnosis 19 The Institutional Framework 19 Human Resource Constraints 19 Inadequate Financing Arrangements 22 Lack of Clear Responsibilities 24 Ineffective Management Structures 27 Weak Management Systems 28 Inefficient Work Methods 29 4. Commercializing Roads: The Four Basic Building Blocks 32 Assigning Responsibility 32 Creating Ownership 32 Ensuring Secure and Stable Financing 33 Introducing SoundiBusiness Practices 33 iv CommercialManagement and Financing of Roads Part III. An Agenda for Reform 35 5. Assigning Management Responsibility 37 Basic Principles 37 Managing the Road Network 38 Managing Road Traffic 49 Key Conclusions and Recommendations 51 6. Creating Ownership 53 The Concept of Ownership 53 Organizations Representing Road Users 54 Ways of Involving Road Users 55 Setting Up a Road Board 57 Key Recommendations and Conclusions 62 7. Ensuring an Adequate and Stable Flow of Funds 65 Setting Clear Market Signals 65 Pricing and Cost Recovery Policies 72 Key Recommendations and Conclusions 77 8. Managing the Revenues 80 Linking Revenues and Expenditures 80 Types of Road Funds 80 Characteristics of Existing Road Funds 83 Problems with Conventional Road Funds 86 Setting Up a Commercially Managed Road Fund 88 Key Recommendations and Conclusions 101 9. Introducing Sound Business Practices 103 Defining the Corporate Mission 103 Separating Planning and Management from Implementation of Road Works 104 Identifying EffectiveWays to Contract Out 106 Staffing Requirements 108 Management Structure 111 Management Information Systems 112 Financial Accounting Systems 114 Controlling the Quality of Road Works 118 ManagerialAutonomy and Accountability 122 Key Conclusions and Recommendations 123 Part IV. Annexes 127 Annex 1. Length of Road and Estimated Asset Values in Selected Countries 129 Annex 2. The Inverse Elasticity Rule 130 Annex 3. Estimating Road-User Charges: A Worked Example 132 Annex 4. Review of Selected Road Funds 139 Annex 5. Draft Road Fund Administration Bill 145 Annex 6. Standard Format for Setting Up a Road Fund Under Existing Legislation 153 References 157 Foreword Theroad sector is big business. If main road agen- and put on a fee-for-service basis. In other words, the cies were publicly listed companies, they would road