MORE TOLL TAXES ON THE HORIZON
By MUHAMMAD BASHIR CHAUDHRY
Mar 29 - Apr 04, 2004
Pakistan has a road network covering 0.252 million km-0.151 million km high types and 0.101 million km low types of roads. National Highways, Motorways, G.T. Road, and Super Highway which have heavy traffic load are categorized as high type roads, while the single and light traffic roads, for example market to farm roads are generally categorized as low type roads. The National Highways Network consisting of 8,845 km is 3.5 per cent of the total road length in Pakistan. The government has decided to increase the present National Average Road Density from 0.23 km/sq. km areas to 0.3 km/sq. km areas. Moreover, the length of the National Highways shall have to be increased at a fast rate in order to enhance economic development for the welfare of the people. The federal government is responsible to construct and maintain high type road and the provincial governments are responsible for the construction and maintenance of the low type roads. The City District Governments within their limits have now assumed the role of road development, operation and maintenance. The government has assigned to the National Highways Authority (NHA) functions to plan, promote, organize and implement programmes for construction, development, operation, repair and maintenance of national Highways/Motorways and Strategic Roads. The government has introduced a fee-for-use culture in the country and presently NHA has 57 toll plazas all over the country.
Experience in both developed and developing countries makes it clear that roads have played a dominant role in the economic development. It is increasingly becoming difficult for the governments to fully finance the needs of the road sector maintenance, upgrading, modernization of outdated networks and expansion through the consolidated fund. Governments are responding to this situation in three main ways: (i) by tolling their express way network, (ii) by restructuring their road agencies to put them on a more commercial basis, and (iii) by financing the balance of the untolled network comprising major chunk of the total road network. Countries are increasingly bringing roads into the market place and putting them on a fee-for-service basis. In other words, they are commercializing the provision of road services. Pakistan has since embarked upon fast development of physical infrastructure mega projects including roads, highways, turnpikes and bridges. As more roads and highways become operational, more toll tax collection plazas would be set up by the concerned authorities. The district governments have also started building of roads and other related infrastructure and hope to collect toll taxes from the users of these facilities. The shape of things to come would be clear from the following two recent developments.
The NHA, as per press reports, signed on 26th February an agreement with TollLink, a South African company, to install Electronic Toll and Traffic Management (ETTM) System at toll plazas on highway N-5 (GT Road) Peshawar-Islamabad-Lahore section. TollLink has been granted the contract to install six more toll plazas after it successfully operated two such toll plazas on trial basis with one near Sangjani and the other at Patoki. The project costing Rs 139 million will be completed in two years and TollLink will also be responsible for training the toll plazas staff. With the installation of ETTM System toll tax revenue is expected to increase from 10 per cent to 15 per cent. The Chairman said that effective measures are being taken to control the slippage of toll money. At present toll collection across the country is around Rs 3.2 billion, for which the Punjab is the major contributor around Rs 1.9 billion annually. He said as part of the privatisation process, the Ministry of Communication had embraced upon a plan to enhance revenue from the roads through a foolproof toll collection process. As a first step, the government took over tolling of all roads and highways in 1998. The manual toll collection was operationally slow and uneconomical with no room for improvement or growth and lacked audit facility.
The Punjab Assembly on 25th February constituted a 12-member committee to review imposition of a toll by various district governments. Earlier during discussion, the members expressed divergent views on various aspects of the toll tax. Alleging corruption in the award of a toll contract in Faisalabad, one of the members urged the government to provide relief to people as several cases of altercation between the contractor and road-users were being reported daily. In reply to assertion that the levy was illegal as the district government had not sought permission of the provincial authorities for the contract, it was said that the Punjab government had been consulted before introduction of the toll. Another member reportedly said the road-user tax had also been imposed in Lahore but withdrawn when it was strongly resisted by the masses and warned that the step would evoke protests from people who were already facing financial hardships. The members from other districts said that a similar tax had been imposed in their districts by the respective district governments, and demanded its withdrawal.
The District Government Faisalabad has reportedly passes a formal resolution unanimously on 28th February for the abolition of toll, in the larger public interest, from five main roads in the district ending two-month long tussle. The District Nazim said that efforts were being made for the abolition of toll from some other roads in the district as well. The district government had awarded toll collection contract on Sargodha Road for Rs6.3 million, Jhang Road for Rs4.6 million, Resalewala for Rs6.3 million, Khurrianwala to Jaranwala Road for Rs0.43 million and Jaranwala and Satiana Roads for Rs0.28 million. The contractors had started collecting tax from 1st January for a period of six months till 30th June 2004.
The District Nazim, addressing the press at Chenab Club, said that toll tax was levied to generate additional funds for the future expansion in addition to their regular repair and maintenance. He said that the district government was presently collecting Rs220 million annually on account of different taxes and levies which was meagre as compared with the expenditure as well as development requirements of the people. In the current budget of Rs4.28 billion, a huge sum of Rs960 million had been allocated for uplift purposes. The 3,600 kilometers long roads network in the district required huge funds for repair and maintenance and the task would be achieved under a phased programme. He reportedly said that the prime minister had agreed to provide a special grant for the improvement and widening of Sargodha Road and that the chief minister also promised to provide funds for widening of the Jhang Road. He said the construction work of Faisalabad-Sheikhupura dual carriageway would also commence within next fortnight through the Frontier Works Organization.
The collection of toll tax from the road users is not uncommon in both the developed and the developing countries. Pakistan is not new to such collection. Toll tax has been collected on the Super Highway between Karachi and Hyderabad, on the Motorway between Lahore and Islamabad, Band Road in Lahore and the Bridge on the River Ravi near Lahore on Sheikhupura-Lahore Road. Even in Islamabad, the Capital Development Authority (CDA) has been receiving toll tax, for which CDA has awarded collection contract to the National Logistic Cell (NLC). Notwithstanding the abolition of toll tax by the District Government Faisalabad, the toll tax levy and collection is expected to become more extensive in the days to come due to completion of the on-going and future mega infrastructure projects in various parts of the country. The unpleasant tussles like in Faisalabad must be avoided in future. Before initiation of any toll-based development project, the stakeholders might be taken into confidence and all aspects of the toll tax might be discussed in detail. If the people from Faisalabad, an industrial city located in one of the most fertile areas in the country, can protest against the levy of toll tax, it would not be difficult to foresee the reaction on the toll tax of the people that are living in more under-developed areas of the country. There is urgent need to devise and put in place a toll-tax policy framework that is transparent and fair to all stakeholders. Some of the areas that need particular attention are discussed below.
It may be appreciated that toll is a tax like any other tax and must not be levied without due process of law. The motorists might not be taxed twice or more often. The motorists pay road tax every year to the provincial excise department and also pay tax when purchasing gasoline or diesel from the petrol pumps. The captive drivers, once they are on the toll roads are forced to buy food at franchised stores at inflated prices. It is said that perhaps the fuel tax provides enough funds to the government every year to literally convert most of the toll highways into freeways.
Financing source of a highway, a turnpike or a bridge largely determines if it would be toll free or what should be the magnitude of the toll and for what period? If the entire funding has been made available by the federal government for the construction of the facilities, there is no justification for levy of a toll. If at all, it is considered to make the facility subject to a toll tax, the levy should be kept nominal to cover the cost of maintenance and the expenses incurred for the collection of the toll. For toll tax levy, it might be a pre-condition that all projects have been executed well ensuring full value-for-money-spent and the motorists are not be made to suffer due to bad planning or sloppy execution with substantial wastage or pilferage of resources. The roads must be maintained well and the traffic should be properly controlled.
Roads or other physical infrastructure projects are also built through private-public participation. In such case the private sponsors arrange money for construction purposes and recover their investment with profit through toll tax collection over a concession period that might extend up to 30 years. One such project was the Faisalabad-Lahore dual carriageway project at Khurrianwala about 14km from Faisalabad that was inaugurated by the President on 4th of October 2002. Speaking at the inaugural ceremony, he reportedly said the carriageway would be constructed on BOT basis at a cost of Rs4 billion. The President had appreciated the contribution of Punjab in improving its road infrastructure with the active co-operation of private sector and said that other provinces should also replicate this project to bring a qualitative as well as quantitative improvement in their road network. It may be noted that the private investors, who are offering the government to construct certain highways under BOT arrangements, are looking for highly profitable opportunities. They will be spending the money upfront, two or more years before the toll tax collection would start. However, in order to bind the government to the agreed arrangements, they would require execution of a number of inter-related agreements and would seek a number of guarantees and concessions. Their efforts would be to pass to the government even those risks that purely belong to them. Unlike the government departments, the private investors can hire the best technical and legal experts and their efforts are to conclude agreements heavily tilted in their favour. This calls for proper vetting of all major parameters of the projects and careful negotiation of the concession agreements.
INFRASTRUCTURE PROJECTS IN THE PIPELINE UNDER BOT FINANCE INCLUDE: (1) Light Rail Transit project at Lahore; (2) Electro-Magnetic Train Project of City District Government Karachi; (3) Inter-City Bus Terminuses at Lahore and Karachi; and (4) Public Swimming Pools/Water Amusement Parks/Entertainment Areas at Lahore and Islamabad. Resources constraints and the urge to provide facilities to the common people are presumably the main reasons for considering BOT financing options for construction of various infrastructure projects. Under BOT mode, the financiers recoup their investment with profit through toll tax from the users of project facilities for concession period that may extend up to 30 years. In case the charges are exorbitant, there might be hue and cry or protests by the general public, to the discomfort of the government of the day. Disputes might turn ugly into legal cases with international implications. It will not be improper to use BOT option after other financing options have been exhausted. A federal or provincial Regulatory Authority might be established to decide on the rationale for the toll tax, its reasonability and tenure.
BOT financing is generally costlier to finance, difficult to negotiate and takes longer to realize the project. Municipal Banks are the ideal place to raise finances for implementation of physical infrastructure projects within the limits of the City District governments. Until we have a proper Municipal Bank, the commercial banks and DFIs might be approached to fill the financing gap. NHA Bonds, Provincial Government Bonds or Municipal Bonds or TFCs are other options for mobilizing funds for financing infrastructure projects. The federal government may be approached to allow income tax exemption on the securities; with a view to make them attractive to the investors and to mobilize funds at relatively less cost. The provincial and city district governments might also like to explore credits from the World Bank, IDA or ADB for financing construction of important highways or other important physical infrastructure projects. Funding from these institutions would be relatively cheaper. Once the highways or other infrastructure projects are ready, user charges/toll rights may be auctioned off in a transparent manner on yearly basis. Through this approach, the users are expected to pay reasonable toll tax.