• Tuesday, July 23, 2024
businessday logo

BusinessDay

Beyond tolls, Nigeria needs a sustainable road fund

Beyond tolls, Nigeria needs a sustainable road fund

Nigeria’s entire planned expenditure spend in the 2021 budget is only 65 percent of what South Africa spent on infrastructure last year, underscoring that budgetary allocations alone are inadequate to build Nigerians good roads and railways.

This stark reality informed previous government’s efforts at creating other investment vehicles to unlock private capital for infrastructure financing based on Public-Private Partnership (PPP) model. These are the National Integrated Infrastructure Master Plan (NIIMP) and the Road Trust Fund (RTF), which have seen limited success.

Against the backdrop of a plan by the Federal Government to concession 12 pilot federal highways signalling a return to tolling, analysts say a sustainable road fund offers Nigeria one of the most sustainable options.

“The creation of a dedicated National Road Fund, which owns all the roads and tolls all of them at different levels, and uses the funds from that to independently fund new roads. That is the key,” Fola Fabule, senior vice president/head of Financial Advisory at Africa Finance Corporation, states.

Other African nations like Ethiopia, Zambia, Kenya, Ghana, Malawi, Tanzania, and even Benin Republic all have functional road funds, many established since the 1990s.

They are financed by fuel levies or some form of tolls and managed by boards representing the interests of road users. These boards include private sector operators and public servants.

A World Bank study found that in principle, all the road fund boards are responsible for generating and allocating resources for road maintenance. But in practice, the boards’ resource powers are much more restricted than originally envisaged.

Some boards are empowered to recommend fuel levy but in many cases spending programmes must be approved by one or more government ministries. Some decide what projects to embark on, independently organise fund raising and select vendors, and execute projects.

Yet some of the roads in Africa have been plagued by accusation of abuse. For example, Alexander Cummings, the opposition leader in Liberia, accused President George Weah of mismanaging the National Road Fund created in 2015.

“The Road Fund remains a viable domestic financial vehicle but has been abused by this government to the contrary that partners in the sectors who committed to support the programme through Matching Fund have reneged due to proven mismanagement and failure to adhere to agreed governance protocols,” he claimed.

A long road to infrastructure funding

According to a recent International Monetary Fund (IMF) Technical Assistance Report on Nigeria, the country requires an aggregate investment of $100 billion from 2020 to 2030 to construct an additional 180,000 kilometres to the existing network of 195,000 kilometres of federal, states and local government roads.

Achieving this funding has been an uphill task and it is not for lack of trying. In 2013, the Federal Government created the National Integrated Infrastructure Master Plan (NIIMP) that sought to raise $3 trillion to implement it. Without a sustainable path for recovery, the plan did not see much success.

In February 2017, the Ministry of Budget Planning and National Development launched the Economic Recovery and Growth Plan 2017-2020 (ERGP) with infrastructure development as one of its key pillars.

Under this plan, the Federal Government sought to collaborate with the private sectors through PPPs to achieve the ERGP targets.

However, the Federal Executive Council in October 2017 approved the Road Trust Fund (RTF), also another PPP arrangement led by the Federal Ministry of Finance and the Federal Ministry of Power, Works and Housing. The RTF allows private sector involvement in road construction in exchange for a three-year tax credit.

“RTF can be said to be a revision of the existing infrastructure tax relief (ITR) scheme that grants tax relief to companies incurring expenditure in public infrastructure,” said Afolabi Elebiju and Gabriel Fatokunbo, lawyers at Lelaw Barristers and Solicitors in a published review.

To consolidate on the plan, in January 2019, President Muhammadu Buhari signed an Executive Order on ‘The Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme Order 2019 (EO 007).

The order was meant to encourage private capital in building roads to be repaid in the form of tax credit through a single uplift equivalent to the prevailing Central Bank of Nigeria’s (CBN) Monetary Policy Rate (MPR) plus 2 percent of the project cost, which does not constitute a taxable income to the participant or beneficiary.

“If the Scheme is properly managed, it could greatly accelerate road development, with requisite positive spill-over effects on the economy,” said Afolabi and Fatokunbo,

However, the Coronavirus pandemic and the subsequent erosion of capital and markets have depressed the ability of many Nigerian companies to fund these kinds of initiatives. This opens a path for a more sustainable approach through the use of road funds.

Nigeria’s move towards deregulation of the downstream sector offers a path to raise funds by converting some of the administrative charges imposed by the Petroleum Products Price and Regulatory Agency and Petroleum Equalisation Fund on the petrol pricing template into a dedicated road fund to be operated along with previous schemes.

Apart from wasteful petrol subsidy, the Nigerian government loses billions in revenue because it does not tax consumption of the product. At the daily consumption rate of 55 million litres per day, according to the NNPC, a Value Added Tax (VAT) of 7.5 percent on every litre of petrol costing N165 per litre will generate over N680 million daily and over N248 billion yearly in revenue, a big boost to a government staring down at a fiscal crisis.

The Buhari administration is funding big-ticket infrastructure projects including railways, pipelines and roads mostly through Chinese loans, where default presents significant risk to the economy.