ISLAMABAD: The National Highways Authority (NHA) needs to identify additional sources of revenue to meet its funding requirements for network maintenance which is facing accelerated deterioration, says the Asian Development Bank (ADB).
The Bank in its latest report titled “Road funds and road user charges in the CAREC region”, noted that Pakistan collects significant revenue from fuel excise taxes and levies, but the revenues are not earmarked for the roads in the country and instead go to the general budgets.
Pakistan is ensuring the efficient use of its road fund financing through its road asset management system. However, funding needs are increasing as additional highways are transferred from the states, and it is facing limitations in its ability to increase revenues of earmarked charges to match the growing needs.
Pakistan is putting significant effort into mapping the current use of the right-of-way, and properly regulating and collecting fees for usage. In doing so, it is facing historical uses and old leases that need to be regulated.
The report noted that most high-volume highways and motorways have now been put under tolling and, although some additional road sections can still be tolled and provide additional revenue, this is very limited. Although toll rates are relatively low in Pakistan, but raises to the toll rates are not considered a viable option because toll roads already have relatively low usage in Pakistan, and it is expected that road users will opt to use non-tolled highways. NHA is now looking at increasing its revenues from the use of the right-of-way, but this is unlikely to provide the necessary levels of revenue and additional sources of funding will need to be identified.
The report noted that in 2003–2004, the optimal funding needs were determined to be just under Rs7 billion ($125 million). Over time, the needs grew to Rs64 billion in 2019–2020 ($415 million). To a large extent, this is because of the expansion of the road length under the responsibility of NHA, as state highways were transferred to NHA that was considered to be in a better position to finance their maintenance than the state governments. The upgrading and new construction of motorways have also led to increased funding needs.
At the same time, Road Maintenance Account (RMA) revenue growth has not been able to keep up with demand. Where the RMA revenue was able to cover over 70 percent of needs at the time of establishment, coverage gradually decreased to 40 percent–50 percent in past years. This is forming a considerable problem, with highways receiving insufficient maintenance and becoming subject to accelerated deterioration. The inclusion of some state highways under the responsibility of NHA led to a worsening of road conditions as reflected in the average roughness of the network. Many of the poor highways have since been improved through capital investments financed outside of the RMA, resulting in a gradual improvement in network conditions.
The improved road conditions have also reduced the maintenance funding needs, although these remain nearly twice as high as the available funding from the RMA. Most high-volume highways and motorways have now been put under tolling and, although some additional road sections can still be tolled and provide additional revenue, this is very limited.
Pakistan is the only country using a road asset management system (RAMS) as the basis for its annual planning process. This greatly increases the quality of their plans and has led to steadily improving road network conditions.
With $259 million in revenue in 2019, Pakistan has the highest road fund revenues for maintenance and repair, while at the same time financing the smallest road network. As a result, the available funding for maintenance and repair amounts to $19,000/km. However, the RMA in Pakistan finances a large portion of expressways and motorways with multiple lanes, and the available revenue per 2-lane equivalent road will be significantly lower and in the order of $16,000/km.
The high-speed expressways and motorways also have higher standards and thus higher maintenance and repair costs than general highways, resulting in higher funding needs per kilometre. This is evident also in the funding needs for maintenance and repair, which NHA estimates to be in the order of $415 million, equivalent to $30,000/km. This funding level is considered very high, even considering that many of the NHA roads have multiple lanes, and likely includes backlog maintenance of roads that have not received adequate maintenance in the past or that have been transferred to NHA recently. The current coverage of the estimated optimal needs is 62 per cent.
Coverage has been better in the past, and part of the problem lies with the highways that have been transferred to NHA by the states. These tend to be highways with backlog maintenance and with lower traffic volumes, and thus limited potential for toll revenues. This implies that revenues from other motorways and highways need to be diverted to these recently transferred highways to cover the funding needs. NHA will need to be careful in expanding its road network too quickly, as this jeopardizes the maintenance and repair of the rest of the network.
Copyright Business Recorder, 2022