For Nigeria, a country desiring to have a standard road infrastructure that would stand a test of time, it has been more of politics and game play at the expense of the people. In this piece, VICTOR BUORO, who has been monitoring development in the road sector reports that unlike Ghana, Tanzania, Zambia, the United Kingdom and USA which have domesticated their National Road Funds, Nigeria is far from getting there.
Serious nations of the world place high premium on their roads infrastructure and expend huge sums of money in construction, rehabilitation, upgrading and maintenance. The United States of America in spite of its very high standards of road network is still investing heavily in its roads infrastructure. The business of road construction and maintenance is capital intensive and not one in which our economy which is highly dependent on mono-cultural capital receipts from oil (with its volatile market prices) can sustain. Many nations including Ghana, Tanzania, Zambia, the United Kingdom and USA all have their domesticated versions of National Road Funds. They are thinking globally and acting locally.
For Nigeria, the need for a Road Fund is long overdue but the lack of a serious direction seems to be bugging down its creation. Nigeria has a total of about 195,000km of roads infrastructures of which the Federal and State governments own 35,000 and 27,000km respectively. Rural roads owned by local governments and communities make up for the rest. Year in year out, there are appropriations in the budgets for roads maintenance but hardly are the appropriations matched with actual release. The need for a sustainable National Road Fund (NRF) as a complimentary window of funding is therefore more than necessary particularly when viewed from the perspective that the Railways is comatose and the Inland waterways are silted. The NRF is a commonwealth to be appropriated among the three tiers of government using a prescribed formula and algorithms.
In October 2016, the House of Representatives Committee on Works held a public hearing on the framework for the creation of a National Road Fund (NRF). Several papers were presented necessitating the institution of a Technical Committee primarily to distill the position papers presented and to advise the House Committee on Works on the way forward. In January 2017, the Technical Committee presented its report which till date has not been passed into law by the National Assembly.
Issues On The Road Fund
One of the cardinal recommendations of the technical committee is the proposal to add N5 (five naira) per litre on various categories of petroleum products to finance the roads infrastructure. The committee obviously took a cue from models already in existence in other climes without taking into cognizance the micro and macro-economic ecology of the Nigerian oil industry. While other countries have mechanisms to regularly adjust the pump prices of petroleum products to reflect realities, in Nigeria socio political considerations make it very difficult. Shortly after the last adjustment of pump prices of petrol from N86.50 per litre to N145 per litre, new vagaries came into the economics of product pricing. The exchange rate moved up from N272=US$1 (which was approved for product importers) to N305=US$1. At some point when the US$ was hovering around N500, crude oil prices equally moved from less than US$30 per barrel to about US$55 per barrel. These factors alone would have necessitated another round of pump price increases. However, there has been no adjustment since then.
With further increases in crude oil prices to about US$65 per barrel, NNPC recently publicly accepted that it is running a subsidy regime on product importation. Can you tax a subsidy? It will therefore amount to poor planning by predicating funding of a highly capital intensive roads sector on unstable and unpredictable sources of revenue. Provided government cannot regularly adjust pump prices to protect the levy on petroleum products to fund the roads, this source of funding is not sustainable.
While other countries own and operate their refineries, Nigeria is the only country that produces crude oil, exports it, and import petroleum products. That is not about to change. The upcoming Dangote refinery in Lagos may not bring the desired change as long as government does not completely deregulate the oil industry. Products can only come from that refinery at current pump prices if only government continues to operate a subsidy regime. With timelines for the repayment of loans contracted for the construction of the refinery, it may end up exporting its products considering its location at the Lekki Free Trade Zone. Till date, there are no pipelines, rail lines or inland waterways linking the refinery which infers that Lekki may soon be turned to another tank farm or tanker park like Apapa.
More disturbing about the recommendation of the technical committee is that over the next 10-15 years, vehicles that rely on the consumption of fossil fuel may be phased out completely thus depleting funds available to the Road Fund. The other sources of funding such as Axle load, charge 0.5% levy on value of imported vehicles, vehicle transit charge are all miscellaneous sources of income for the Road Fund. The Axle load charge cannot be effectively collected unless government at all levels install Weigh bridges on all roads. Very few vehicles transit from Nigeria to Niger and Chad. The 0.5% levy on value of imported vehicles has little value. Only major car dealers bring in their vehicles through the ports as most vehicles are still smuggled through the porous borders. The total anticipated income on the N5 per litre levy on petroleum products stands at about N55billion using daily consumption rates of over 365 days. When the 7% cost of collection approved for the Nigeria Customs Service (NCS) is deducted, there will be slightly over N50billion accruing to the Road Fund annually. Distributed among the three tiers of government, the federal government will have just about N20billion per annum. This cannot make the desired impact on roads rehabilitation.
The NIPSS Perspective
Of great interest however is what seems to be a well-researched presentation that was put forward by the National Institute for Policy and Strategic Studies (NIPSS)-Kuru which predicated its revenue model on small User charges spread over Commuter service charges, Haulage User charges, charges on registration and renewal of vehicle papers and a fund for bridges as part of the National Road Fund. Put together, this can yield an average of N364 billion annually. With a revenue collection method driven by technology through the use of pre-paid e-ticketing machines incorporating a national ICT backbone, the use of licensed vendors in hubs of collection, there is transparency in the collection of receipts into the NRF. With toll gates being planned for the nation’s dual carriage ways, total accruals into the NRF when combined with these measures could exceed N400billion annually.
Kick Starting Massive Rehabilitation Of Roads
Most of the roads in Nigeria need total rehabilitation and NIPSS proposal proffers a solution. The Federal Government recently took a SUKUK bond of N100billion to fix some roads. Borrowing without diversifying the revenue base of the country is a trap. NIPSS proposes that with the N400bilion annual accruals to the NRF, the equivalent of US $2billion (approximately N610billion) can be raised from the local capital market for application in the massive rehabilitation of roads. With up to N1 trillion potential, the loans from the capital market can be amortized from receipts into the NRF over 20-25 years. From the statistics provided in the NIPSS research, the revenue projections into the NRF is expected to increase annually by 15%. It is therefore possible to embark on fixing the nation’s road arteries, touch roads in senatorial zones, complete road projects that have become recurrent features in our national budget and get local governments to begin to feature in the maintenance of rural roads which bring food from the interior.
Nigeria’s safety and security services are also factored in as beneficiaries in the architectural model proposed by NIPSS. Through the introduction of security scanners and other platforms at strategic points, it is possible to check the proliferation of arms, ammunitions and ordinance. The Federal Road Safety Commission (FRSC), Army Engineers and Transport organizations feature as beneficiaries in a structured set up in the model.
Through the enactment of the appropriate legal instrument (National Road Fund Bill), the proposal by NIPSS is capable of creating 250,000 permanent jobs in the roads sector, rejuvenate quarrying and equipment leasing, stimulate investment in Nigeria’s rich bitumen reserves, deepen the use of ICT in revenue aggregation, generate the employment of more than 10,000 e-ticketing vendors and bring benefits to Nigeria’s capital market. For a nation in search of a leap out of recession, this ought to be a quick way out into economic prosperity.
The Ding Dong Begins
The NIPSS position paper was rejected on grounds that the proposed methods of collection of the revenue infringed on the autonomy of certain tiers of government. The Commuter service charge and Haulage service charge are to be collected at motor parks, bus terminals and markets which some members of the Technical Committee argued are under the jurisdiction of local governments. The local governments are not constitutionally empowered to collect these charges and as a tier of government, they are to benefit from the National Road Fund under a prescribed allocation formula.
One of the sources of revenue identified by the technical committee in its report is the introduction of “Inter-state Mass Transit Charge” which is 0.5% of transport fares. This model was extracted from the NIPSS recommendation on the introduction of Commuter Service charge. Due credit was not given to NIPSS and in its minority report written to the Chairman of the House of Representatives on Works, it was pointed out. A journey attracting N2,000 (two thousand naira) transport fare will amount to a 0.5% service charge of N10.00 (ten naira only). When the cost of collection is deducted, nothing is left. The NIPSS minority report pointed to this flaw and indicated that more than 90% of its projected revenue of N264 billion annually from this source has been lost due to its modification.
When NIPSS asked for the payment of royalty on the use of its research work which was registered as an intellectual property with the Nigerian Copyright Commission since 2008, the technical committee and by extension the House of Representatives (which is its convener) did not oblige. With the recent passage of the Petroleum Industry Governance Bill (PIGB) by the National Assembly and the introduction of a 5% tax on petroleum products to support the Petroleum Equalization Fund (PEF), the noose seems to be tightening on the sponsors of the National Road Fund particularly on the sources of funding. Nigerians are likely to resist over-taxation of petroleum products considering that small and medium enterprises, households, heavy industries, services and hospitality businesses depend on their own power generation. It is very obvious that if the current version of the draft National Road Fund is passed, it will have very little of the much desired impact on the current state of Nigeria’s roads infrastructure. It could even be an easy way back to recession.