Cases and Evidence
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Laos-Ghana-Zambia – Learning on road maintenance

Organization(s)

World Bank & Ministry of Public Works and Transport, Government of Lao PDR (GoL)

Country (ies)

Ghana and Zambia (experience providers), and Lao PDR (recipient)

Overview

In the late 1990s the Government of Lao PDR (GoL) was considering a sustainable financing mechanism for road maintenance. In February 1999, a delegation of key GoL officials visited Ghana and Zambia to learn first-hand from their successes in financing road maintenance. Through the study tour to Africa, the GoL understood that road users were willing to pay for better road services, and that users should be represented in the Road Fund Board. This exchange helped lay the foundation for the GoL decision to create a Road Maintenance Fund, which today covers the maintenance of Lao PDR's entire national road network and a portion of the local road network.

Background

Roads are the pre-dominant mode of transportation in Lao PDR. The country is land-locked and mostly mountainous and has very low population density. This makes it difficult and costly for the government to provide and maintain all-weather road connections to all parts of the country. Roads were shattered during the Indochina war, and were further deteriorated due to lack of funding and inadequate maintenance and management. As a result, in the late 1990s, the main national travel corridors used to close during the rainy season and some sections barely remained passable during the dry season.

Even though the GoL accorded high priority to road development, overall resources to the road sector were limited. The GoL was hard-pressed with rehabilitating the main national roads, leaving a very small amount of funding for maintenance of existing roads. During hard economic times, the maintenance budget was often squeezed. As a result, roads deteriorated faster than expected, imposing higher costs to users and higher rehabilitation costs to the economy. A sustainable financing mechanism was much needed to ensure adequate funding for road maintenance.

Some Sub-Sahara African countries introduced a Road Fund with revenues from road user charges such as a fuel levy to finance road maintenance. While outcomes of these initiatives were mixed, successful cases were associated with a good governance structure.

In Ghana the establishment of a Road Fund substantially reduced the problems of disruption to the planning and execution of maintenance works, and greater certainty of funding allowed the introduction of effective competitive bidding processes.

Implementation

1. The World Bank hosted workshops and prepared economic studies for the Government of Lao PDR to share cases of best practice in financing road maintenance. Through this, GoL realized that Sub-Sahara African countries had the most relevant and available experiences to share at the time.

2. World Bank identified Ghana and Zambia as ideal partners and mobilized trust fund money to fund a study tour comprised of a delegation of key GoL to Ghana and Zambia in February, 1999

3. The World Bank facilitated the study tours

4. This initiative contributed to establishing the steps and procedures for the creation of Lao PDR's Road Maintenance Fund (RMF), which was identified at a policy workshop held in Vientiane in June 1999. As a result, GoL passed the decree to create the RMF and the RMF Advisory Board in 2001

5. World Bank supported the road maintenance capacity development and works execution through IDA-funded Road Maintenance Program Phase 1 and Phase 2

Outcomes

Today, the RMF covers the maintenance of Lao PDR's entire national road network and a portion of the local road network. RMF revenues are expected to reach a sustainable level by 2015. The one-off exchange between GoL and Ghana and Zambia was instrumental to the RMF's success over the past 10 years. Achievements include
1. RMF domestic revenues has grown from US$2 million in 2002 to US$33 million in 2009, and are expected to grow to the self-sustainable level in about 5 years that would be adequate to cover the maintenance need of the entire road network;
2. In 2001, only about 38 percent of the national road network was considered in good or fair condition; in 2009, over 80 percent of the national road network was considered in good or fair condition.
3. The institutional capacity at the central and provincial levels for road maintenance—in terms of planning, programming, procurement, contract management, public information disclosure--has significantly developed.
4. GoL successfully introduced performance-based maintenance contracts which now cover over 60% of the National Road network. Under the PBC arrangement, a complaint mechanism has been established through which road users can report poor conditions.
5. The RMF is doing well and has gained public support, making true sustainability a real possibility.

Change in Relationship Between the Providing and Receiving Countries / Governments / Organizations

The Lao PDR's relationship with Ghana on the road sector wasn't sustained. GoL did include Zambia in a follow up event; the principal thought architect behind Zambia's road fund participated in a National workshop on the commercialization of the Road Sector in Lao PDR. His participation/input was highly valued by GoL.

Zambia gave a very profile to the visit from the Government of Lao PDR. The delegation was received by 4 of Zambia's ministers and featured prominently in national media.

Sustainability and Replicability of Outcomes

Sustainability is highly possible, with Lao PDR's RMF revenues expected to reach a sustainable level by 2015. The fact that this program was replicated under distinct circumstances suggests that yes, it could be replicated elsewhere.

Two key success factors in the Lao case that go beyond the exchange activity lend greater evidence of sustained outcomes
1. The RMF started as a simple arrangement, but it ensures secured and growing funding for road maintenance in a country hard-pressed with competing priorities. The RMF Advisory Board is not yet able to make fully informed decisions on the level of fuel levy that road users would be willing to pay in exchange for better road conditions. Still, the Board does include road users, thus providing a foundation for stakeholder input and support.

2. The World Bank's ongoing involvement has played a critical role in turning the Ghanaian and Zambian experiences into a successful reality for Lao PDR. Over the past 9 years, two Bank projects (Road Maintenance Program Phase 1 and Phase 2) have supported Lao PDR's Road Maintenance Fund—through both gap-filling financing and technical assistance for road maintenance capacity building. Established legal covenants also require for the fuel levy to gradually increase toward a self-sustaining level. The covenant was repeated in the IDA-funded Poverty Reduction Support Operations so as to ensure the continuing support of the Ministry of Finance.

Specifically, with respect to Replicability
1. Vietnam, which is in the process of establishing its own RMF, recently invited Lao RMF secretariat and the chairman of the board to present their success story in Hanoi.

2. In November 2009, a Cambodian delegation visited Laos to learn on how to establish and run a RMF.

Negative impacts?

To date, there are no known negative impacts associated with the Lao RMF. RMF is an off-budget financing. Many macro-economists in the Bank and IMF oppose the idea on the basis of possible damaging effects on fiscal flexibility. In the Lao case, RMF revenues have been small compared to national budget and Official Development Assistance.

Aid Effectiveness

--Has there been an effort to harmonize and coordinate with other programmes and development actors?

IDA has been the lead donor to support the Road Maintenance Program in Lao PDR. The program has been co-financed by Swedish SIDA, ADB, and Japan (through PHRD). The successful collaboration of IDA, SIDA, ADB, and Japan has helped lay a foundation for Government-donor coordination and aid effectiveness. It is under the Road Maintenance Program, where the same Standard Bidding Document is used for both donor and government funded works contracts, and where the ministerial organizational units, instead of the Project Implementation Units, are in charge of the program.

--Was national leadership and ownership supported?

Part of the success is due to national leadership and ownership. Both the RMF and the RMF Advisory Board were created by Lao PDR's Prime Minister Decrees.

--To which extent was the experience aligned to national priorities and systems?

Lao PDR is land-locked and mostly mountainous and has very low population density. This makes it difficult and costly for the government to provide and maintain the all-weather road connection to all parts of the country. The government has long accorded priority to road development since late 1970s. Since 2001, the priorities have included road maintenance. The RMF is subjected to the audit of the State Audit Organization, and the maintenance contracts financed under the RMF have been procured through national competitive bidding (NCB) process.

Capacity Development

See above description for detail, but specific CD elements include - This exchange experience, and what was learned as a result, laid the foundation for GoL's decision to create the RMF and RMF Advisory Board; Continued support and assistance has led to significant development of institutional capacity at the central and provincial levels for road maintenance—in terms of planning, programming, procurement, contract management, public information disclosure.

Duration

The Exchange between GoL and Ghana/Zambia took place in 1999. The impact is still ongoing.

Budget (Optional)

Study tour budget: US$25,000 – $50,000

Name of Primary Contact Person

H.E. Sommad Pholsena

Title of Primary Contact Person

Minister Ministry of Public Works and Transport

City

Lao People's Democratic Republic