Proposal to the External Resources Department, Ministry of Finance, Sri Lanka)

December 2008

ASIAN DEVELOPMENT BANK

TA Loan 2080-SRI: Road Project Preparatory Facility (RPPF)

December 2008

Recommended Maintenance Cycle

Additional Life Span

AdditionalLife Span

AdditionalLife

Span

Un

it O

pe

rati

on

& M

ain

ten

an

ce

Co

st

(Rs

.)

Reh

ab

ilit

atio

n 1

Reh

ab

ilit

atio

n 2

Reh

ab

ilit

atio

n 3

Additional Life Span

Time (Age)

Original Life Span

Un

it O

pe

rati

on

& M

ain

ten

an

ce

Co

st

(Rs

.)

Total

% of Length by Present Road

Condition

Good Fair Poor

Type of Road Total Kms

% of Length by Present Road

Condition

Good Fair Poor

Metalled and Tarred (single Lane 2 to 4 m) – “D” 179.76 20% 30% 50%

Metalled and Tarred (intermediate lane 4 to 6 lanes) “C” 1369.20 10% 30% 60%

DBST Surface (Single lane 4 to 6m) 192.00 100% - -

Total 1741.00 21% 27% 52%

Road Condition in North Central Province

Road Condition in Uva Province

Type of Road Total Km

% of Length by Present Road

Condition

Good Fair Poor

Gravel/Earth Road (Single Lane – 2-4 metres) 327.66 12% 13% 75%

Metalled and Tarred (single Lane 2 to 4 m) 770.55 8% 12% 80%

Total 1,098.21 9% 12% 79%

Type of RoadTotal

KmsGood Fair Poor

Metalled and Tarred (single Lane 2 to 4 m) – “D” 722

60% 25% 15%Metalled and Tarred (intermediate lane 4 to 6 lanes) “C” 1,037

DBST Surface (Single lane 4 to 6m) 192 100% - -

Total 1951 64% 23% 14%

Road Condition in Eastern Province

� The major portion of the provincial road network in most provinces is in poor condition.

� This should be interpreted as being roads that have long-expired their design life and is overdue on rehabilitation.

� Since funds for rehabilitation is scare these roads are being kept motorable with expensive ‘maintenance techniques’ (sand sealing- premix programs etc).

� As a result, roads that are within the life cycle are denied regular maintenance funds

� Thus delaying routine expenditure leads to rapid deterioration of the better roads as well, reducing their life expectancy sharply. In a study of the cost between routinely maintained roads and roads under ‘stop-gap’ maintenance strategy in Uva, the overall life cycle cost was found to be 19 times higher. This is consistent with international studies

� Politically (and even socially) the rationale is to ensure the non-motorabel roads are made motorable, even if it means that newly rehabilitated roads are denied funding regular maintenance until they too deteriorate to poor condition so that expenditure is justifiable.

Ministry of PCs & LG

Fund Requesting Criteria

(No specific criterion for foreign funds)

Fund Releasing Criteria

Notification of

fund releasing

Notification of

fund releasing

Funding recommendations for

approved Road Program

Central Government

(Treasury)

Domestic Financing Foreign Financing

Finance Commission

•Domestic Funds

•Foreign aid related domestic funds

Domestic Financing Sources

•Foreign aid loans

•Foreign aid grants

•Reimbursable Foreign aid loans

Foreign Financing Sources

Eg: PSDG, Criteria & Block

Grant based works

Periodic & Routine Maintenance

Rehabilitation & ImprovementsEg: RSDP Eg: CAARP

STAART

fund releasing

Next year Road

Work Program

Finalized Next year Road

Work Program

Ministry of PCs & LG•Devolved Revenue

Provincial Councils

Provincial Road Agency

� Domestic Funds:Domestic Funds:Domestic Funds:Domestic Funds:

� Block GrantBlock GrantBlock GrantBlock Grant: Recurrent expenditures of PCs are covered by these block grants. Other than the Western Province most provinces get the majority of their recurrent budget under block grants from the Central Government. For the road sector this includes salaries, overheads and an allocation for recurrent maintenance which in addition to other assets includes a significant portion for road maintenance.

Rs.’000

Recurrent Expenditure 2006 Actual 2007 Estimate 2008 Estimate

Example Uva Province

Recurrent Expenditure 2006 Actual 2007 Estimate 2008 Estimate

Personal Emoluments 22,594.0 35,226.0 34,268.0

Traveling Expenses 1,661.0 2,000.0 3,000.0

Supplies 1,282.0 3,669.0 3,250.0

Maintenance Expenditure 26,456.0 62,065.0 53,725.0

Contractual Services 736.0 1,296.0 2,100.0

Transfers 341.0 600.0 1,000.0

Other Recurrent Expenditure - 60.0 80.0

Total 53,070.0 104,916.0 97,423.0

� Provincial Specific Development Grant (PSDG):Provincial Specific Development Grant (PSDG):Provincial Specific Development Grant (PSDG):Provincial Specific Development Grant (PSDG): These are capital grants provided for identified and agreed development priorities in the sectors of infrastructure, health and education etc. The FC has authority to supervise the progress of the performance of the PCs in these projects prior to releasing these grants. PCs do not have provision to deviate from the grant utilization guidelines provided by the Finance Commission.

But in provinces where the road network is poor these are used for � But in provinces where the road network is poor these are used for maintenance work (eg, Uva, EP).

� Only small length of roads actually receive any capital investment for rehabilitation (eg. Uva-10 kms (0.1%) and NCP -25 kms (2%)).

� This means that provincial roads can only be rehabilitated once every 50 years of more!)

� Central Government allocates more than 90% of the budgetary

needs of the PCs with provincial revenue accounting for only

about 10% of their total financial needs for both recurrent and

capital expenditure.

In year 2007, the total expenditure of all PCs was Rs. 105, 850� In year 2007, the total expenditure of all PCs was Rs. 105, 850

mn and only Rs.13,900 mn was collected by the PCs from

devolved revenues.

� Annual Vehicles Revenue License Fees makes up around 20%

of the earned income (2007).

40.0

50.0

60.0

70.0

80.0

90.0

Rs. m

nR

s. m

nR

s. m

nR

s. m

n

Maintenance Allocation & Expenditure Trend (2004Maintenance Allocation & Expenditure Trend (2004Maintenance Allocation & Expenditure Trend (2004Maintenance Allocation & Expenditure Trend (2004----07)07)07)07)Allocation = Height of the bar, Expenditure= Dark Portion of the barAllocation = Height of the bar, Expenditure= Dark Portion of the barAllocation = Height of the bar, Expenditure= Dark Portion of the barAllocation = Height of the bar, Expenditure= Dark Portion of the bar

0.0

10.0

20.0

30.0

40.0

2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007

UP NCP EP

Rs. m

nR

s. m

nR

s. m

nR

s. m

n

200.0

250.0

300.0

350.0

400.0

450.0

500.0

Rs. m

nR

s. m

nR

s. m

nR

s. m

n

Capital Allocation & Expenditure Trend (2004Capital Allocation & Expenditure Trend (2004Capital Allocation & Expenditure Trend (2004Capital Allocation & Expenditure Trend (2004----07)07)07)07)Allocation = Height of the bar, Expenditure= Dark Portion of the barAllocation = Height of the bar, Expenditure= Dark Portion of the barAllocation = Height of the bar, Expenditure= Dark Portion of the barAllocation = Height of the bar, Expenditure= Dark Portion of the bar

0.0

50.0

100.0

150.0

200.0

2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007

UP NCP EP

500.0

600.0

Total Allocation & Expenditure Trend (2004Total Allocation & Expenditure Trend (2004Total Allocation & Expenditure Trend (2004Total Allocation & Expenditure Trend (2004----07)07)07)07)Allocation = Height of the bar, Expenditure= Dark Portion of the barAllocation = Height of the bar, Expenditure= Dark Portion of the barAllocation = Height of the bar, Expenditure= Dark Portion of the barAllocation = Height of the bar, Expenditure= Dark Portion of the bar

Some Observations

� Varying Utilization

� No consistency in Maintenance funds

� Imprest issues

� Diminishing Values

0.0

100.0

200.0

300.0

400.0

2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007

UP NCP EP

Rs. m

nR

s. m

nR

s. m

nR

s. m

n

� For an average replacement cost of Rs 18 million in 2008 prices, the maintenance cost at 2% p.a. works out to around Rs 360,000 per km per year.

� This is a much higher level of maintenance than what is experienced on the present roads. This includes preventative maintenance and maintenance of road signs and markings which are totally missing on the entire provincial road network at present.

� The approximate breakdown of this amount at present prices would be as follows:◦ Weeding and clearing Rs 30,000 per year◦ Sand Sealing (3 yr application) Rs 200,000 per year ◦ Pothole management Rs 50,000 per year◦ Maintenance of signs and markings Rs 30,000 per year ◦ Maintenance of signs and markings Rs 30,000 per year ◦ Emergency repairs/repair of structures Rs 20,000 per year◦ Overheads Rs 30,000 per year

� Thus it should be borne in mind that the ongoing re-construction program will increase total maintenance costs in the short term when more and more re-constructed roads will get added to the network for which a proper maintenance regime should be applied.

� That will then increase routine maintenance expenditure from an average of Rs 100,000 per km to around Rs 360,000 per km as has been suggested herein.

150,000.0

200,000.0

250,000.0

300,000.0

350,000.0

Rs.

Rs.

Rs.

Rs.

Central Govnt. Budgetary & Actual Allocation/km(2004Central Govnt. Budgetary & Actual Allocation/km(2004Central Govnt. Budgetary & Actual Allocation/km(2004Central Govnt. Budgetary & Actual Allocation/km(2004---- 07)07)07)07)Allocation = Height of the bar, Expenditure= Dark Portion of the bar Allocation = Height of the bar, Expenditure= Dark Portion of the bar Allocation = Height of the bar, Expenditure= Dark Portion of the bar Allocation = Height of the bar, Expenditure= Dark Portion of the bar

0.0

50,000.0

100,000.0

150,000.0

2004 2005 2006 2007 2008 Est.

2004 2005 2006 2007 2008 Est.

2004 2005 2006 2007 2008 Est

UP NCP EP

2008 Estimation is done, assuming same 2007 Fund utilization rate for 2008 allocation

Vehicle TypeVehicle TypeVehicle TypeVehicle TypeFleet, 2007Fleet, 2007Fleet, 2007Fleet, 2007

UPUPUPUP NCPNCPNCPNCPEPEPEPEP

Omnibuses 553 423 619

Private Coaches 1,014 854 334

Dual Purpose Vehicals 4,952 4,780 2,216

Private Cars 3,830 3,241 1,286

Land Vehicles 6,395 7,132 9,800

Goods Transport Vehicles 7,873 6,698 3,867

Motor Cycles 36,304 70,766 64,090

Threewheelers 13,299 10,894 9,617

Others 156 22 262

Total Total Total Total 74,37674,37674,37674,376 104,810104,810104,810104,810 92,09192,09192,09192,091

Western

43.5%

Central

6.7%

Uva

3.3%

North Central

4.7%

Eastern

4.1%

Northern

3.2%% of Fleet by Province,2007

Estimated Total Fleet in Sri Lanka = 2,222,803

Southern

14.9%Sabaragamuwa

5.9%

North-

Western

13.7%

UP, NCP and EP are having the lowest vehicle fleets in the country

60,000

80,000

100,000

120,000N

o. of

Veh

icle

sN

o. of

Veh

icle

sN

o. of

Veh

icle

sN

o. of

Veh

icle

s

Growth of Fleet (2003Growth of Fleet (2003Growth of Fleet (2003Growth of Fleet (2003----07)07)07)07)

2004 2005 2006 2007

UP 42,513 50,672 64,074 74,376

NCP 69,744 81,898 97,688 104,810

EP 66,736 73,135 92,131 92,091

0

20,000

40,000

No. of

Veh

icle

sN

o. of

Veh

icle

sN

o. of

Veh

icle

sN

o. of

Veh

icle

s

Annual growth rate = 17%

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

Rs

Rs

Rs

Rs

Earned Vehicle Revenue/kmEarned Vehicle Revenue/kmEarned Vehicle Revenue/kmEarned Vehicle Revenue/km

0

20,000

2006 2007 2008 Est.

2006 2007 2008 Est.

2006 2007 2008 Est.

2006 2007 2008 Est.

UP NCP EP All Island (Excl. Western)

2008 Estimation is done, considering 15-20% vehicle growth per annum and increasing license fee on January 2008

150,000

200,000

250,000

(Earned Vehicle Revenue+Recieved Central Gvnt. Funds)/km(Earned Vehicle Revenue+Recieved Central Gvnt. Funds)/km(Earned Vehicle Revenue+Recieved Central Gvnt. Funds)/km(Earned Vehicle Revenue+Recieved Central Gvnt. Funds)/kmVehivle Revenue/km = Darker Portion Recieved Gvnt. Fund/km=Lighter Portion Vehivle Revenue/km = Darker Portion Recieved Gvnt. Fund/km=Lighter Portion Vehivle Revenue/km = Darker Portion Recieved Gvnt. Fund/km=Lighter Portion Vehivle Revenue/km = Darker Portion Recieved Gvnt. Fund/km=Lighter Portion

0

50,000

100,000

150,000

2006 2007 2008 Est. 2006 2007 2008 Est. 2006 2007 2008 Est.

UP NCP EP

Life Cycle CostLife Cycle CostLife Cycle CostLife Cycle Cost

� Lifecycle cost of a re-constructed road, which would be estimated at Rs 18 million for re-construction and life cycle of 12 years at 2% maintenance cost per year, which works out to a total cost of 1.24 times the cost of re-construction without escalation. The total life cycle cost without providing for escalation is Rs 22.3 million.

� On the other hand providing 15% escalation of costs will increase this to Rs 30 million per km in 2008 prices.

Year

Re-

construct

Cost

Maintenance Life Cycle

Without

Escalation

With

Escalation

Without

Escalation

With

EscalationCost

0 18

1 0.36 0.41 18.36 18.41

2 0.36 0.48 18.72 18.89

3 0.36 0.55 19.08 19.44

4 0.36 0.63 19.44 20.07

5 0.36 0.72 19.80 20.79

6 0.36 0.83 20.16 21.62

7 0.36 0.96 20.52 22.58

8 0.36 1.10 20.88 23.68

9 0.36 1.27 21.24 24.95

10 0.36 1.46 21.60 26.41

11 0.36 1.67 21.96 28.08

12 0.36 1.93 22.32 30.01

Maintenance Cost 2.0%

Escalation Cost 15%

Road FundRoad FundRoad FundRoad FundMethods by which this desired maintainable road network could be

achieved:1.1.1.1. Road Maintenance Fund Subscribed to by PCs (with License Road Maintenance Fund Subscribed to by PCs (with License Road Maintenance Fund Subscribed to by PCs (with License Road Maintenance Fund Subscribed to by PCs (with License

Revenues) and Donor AgencyRevenues) and Donor AgencyRevenues) and Donor AgencyRevenues) and Donor Agency

Re-

construct

Cost

Maintenance Life Cycle Reducing Contribution

Year Without

Escalation

With

Escalation

Without

Escalation

With

Escalation

Donor

Agency

Provincial

Govt

0 18 18.00

1 0.36 0.41 18.36 18.41 0.41

2 0.36 0.48 18.72 18.89 0.482 0.36 0.48 18.72 18.89 0.48

3 0.36 0.55 19.08 19.44 0.49 0.05

4 0.36 0.63 19.44 20.07 0.57 0.06

5 0.36 0.72 19.80 20.79 0.58 0.14

6 0.36 0.83 20.16 21.62 0.58 0.25

7 0.36 0.96 20.52 22.58 0.57 0.38

8 0.36 1.10 20.88 23.68 0.55 0.55

9 0.36 1.27 21.24 24.95 0.51 0.76

10 0.36 1.46 21.60 26.41 0.44 1.02

11 0.36 1.67 21.96 28.08 0.33 1.34

12 0.36 1.93 22.32 30.01 0.19 1.73

Maintenance Cost 2.0%

Escalation Cost 15%

Maintenance Increase 1.32

� It enables the PC to begin maintaining the roads from year of re-construction as opposed to the present system where an improved road would not have the required budget for maintenance.

� It also enables the road network to be developed according a strategic plan whereby the entire provincial according a strategic plan whereby the entire provincial road network.

� At the end of the period, the PC would be fully able to meet the maintenance cost, where it is expected that the full annual cost of maintenance of the provincial road network could be raised from the vehicle revenue licenses and the grants from the Central Government

Uva NCP EP

Road kms 1741 1951 1098

Roads reported in good condition kms 180 979 99

Roads re-constructed after 2002 192 192 50

Road kms to be re-constructed 1369 780 949

Cost of Re-construction @ Rs 18 mn/km 24,642 14,040 17,082

Kms re-constructed per year 100 100 100

Number of years required (approx) 14 8 9Number of years required (approx) 14 8 9

Reconstruction Cost per year (Rs mn) 1800 1800 1800

Donor Agency Contribution to Fund 324 324 324

Total Life Time Cost by Donor per year 2124 2124 2124

Total Cost per province Rs mn 29,078 16,567 20,157

Cost in US $ (mn) 272 155 188

Cost per year in US$ (mn) 20 20 20

2. Road Maintenance Fund Subscribed by Provincial Council and Central Government

3. Road Maintenance Fund Fully Subscribed to 3. Road Maintenance Fund Fully Subscribed to by Annual Revenue License Fees

Uva NCP EP

Road kms 1741 1951 1098

Roads reported in good condition kms 180 979 99

Roads re-constructed after 2002 192 192 50

Road kms to be re-constructed 1369 780 949

Cost of Re-construction (Rs mn) 24,642 14,040 17,082

Kms re-constructed per year 100 100 100

Number of years required (approx) 14 8 9

Reconstruction Cost per year (Rs mn) 1800 1800 1800

Donor Agency Contribution to Fund 324 324 324

Total Life Time Cost by Donor per

year

2124 2124 2124

Total Cost per province Rs mn 29,078 16,567 20,157

Cost in US $ (mn) 272 155 188

Cost per year in US$ (mn) 20 20 20

� Maintenance for Roads should be based on the current state of roads and provided as a km cost. It should not be included in a ‘block grant’. Maintenance funds should be ‘Priority 1’. There should be no cuts in this.

� There should be a clear distinction of ‘capital projects’. These should be only those that will include rehabilitation. Funds for this should be allocated only after full maintenance funding is this should be allocated only after full maintenance funding is provided.

� There are problems with imprest to be investigated

� There are problems with utilization to be investigated

� The desired level of maintenance funding of 2% (around Rs 360,000) per km can be provided from existing allocation and earned provincial revenues.

� For this purpose for roads that are to be rehabilitated a Road Fund can be created so that those providing funds for rehabilitation (donor or PSDG) contributes life cycle cost to a fund.

� The province could undertake this on a increasing basis where over 8 t0 10 years it is fully borne by the PC using vehicle revenue license fees. the PC using vehicle revenue license fees.

� For this purpose it is best to designate all vehicle revenue licensing income into the income of the road agency earmarked for maintenance.