Increase taxes, burden the people? ADB says toll rates in Pakistan are low

It seems taxing the ordinary people and increasing the cost of doing everything is the sole panacea, as the Asian Development Bank says toll rates in Pakistan are relatively low and more roads needed to be tolled to increase revenue.

A latest report prepared by the Asian Development Bank (ADB) which convers road funds and user charges claims that increase in toll rates is not considered a viable option because toll roads have relatively low usage in the country, and the users will opt to use non-tolled highways.

The report ‘Roads Funds and Road User Charges in the CAREC Region’, released on Saturday said the 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 to 50 percent in past years, the ADB warns.

This is causing 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 the worsening of road conditions as reflected in the average roughness of the network.

However, the National Highway Authority (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 ADB report was developed as part of the support of the Central Asia Regional Economic Cooperation (CAREC) programme towards the establishment of competitive transport corridors, facilitation of movement of people and goods, and provision of sustainable, safe and user-friendly transport and trade networks.

Road funds currently exist in five CAREC member countries Azerbaijan, the Kyrgyz Republic, Mongolia, Pakistan, and Uzbekistan, the document says, with the amount in Pakistan limited to financing maintenance and repair.

It notes that although total revenue of the RMA has doubled since 2014–2015 in Pakistan rupee terms, reaching nearly Rs40 billion in 2019–2020 ($225 million), the amount have developed less dramatically in US dollar terms, increasing by 34 percent over this same period.

The National Highway Authority (NHA) is now looking at increasing its revenue from the use of right-of-way highways, but this is unlikely to provide the necessary levels of revenue and additional sources will need to be identified.

In Pakistan, the road funds are not managed by an independent entity, and instead are managed directly by the staff of the road agencies, which covers the operational costs involved, says the report.

Moreover, it says all maintenance and repair activities are outsourced to the private sector, and equipment provision is dealt with by the private sector contractors and covered under the contract amounts.

The RMA is an off-budget road fund, where all revenues are collected by NHA and deposited directly into the relevant bank account. The revenues do not go through the federal budget and are not included in or approved as part of the annual budgeting system.

According to the CAREC report, in 2003-2004, the optimal funding needs were determined to be just under Rs7 billion. Over time, the needs grew to Rs64 billion in 2019–2020. 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 provincial governments. The upgrading and new construction of motorways have also led to increased funding needs, the report says.

The RMA is largely dependent on toll revenue, which provided Rs25.6 billion in 2019-2020, equivalent to 64 percent of total RMA revenue. The length of motorways and highways under tolls continues to expand, but is limited by the available network.

The report says currently the NHA is faced with encroachment and unauthorised use of the right-of-way and has started mapping buildings and other structures in an effort to regulate the usage of the right-of-way.

The NHA is also facing old leases that were signed by the provincial construction and works departments before the NHA was created, and that provide certain entities with the right to use the right-of-way at no or very little cost, often with very long lease periods of 99 years. The NHA aims to regulate these existing leases and introduce short-term leases for new service stations and other amenities.

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