Title: North-South Corridor Roads
Document Number: 012010 | Revision: 1.0 | Date: March 2011
Author: TradeMark Southern Africa
Contact: +27 12 349 7500 | [email protected]
www.trademarksa.org | First Floor Building 41, CSIR Campus,
Brummeria, Pretoria, 0001, South Africa
TMSA Case Study Series | North-South Corridor Roads
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PAGE 3
List of Acronyms
PAGE 4
Executive Summary
PAGE 5
1. Background
PAGE 5
2. NSC Roads Programme Objectives
PAGE 6
3. Design and Implementation
PAGE 7
4. Challenges
PAGE 11
5. Factors for Success
PAGE 11
6. Results Achieved
PAGE 12
7. Conclusion
PAGE 13
Annex 1: Financing the North-South Corridor Road Network
PAGE 16
Annex 2: Tripartite Trust Account
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TMSA Case Study Series | North-South Corridor Roads
COMESA
EAC
SADC
DFID
REC
NSC
GIS
ICA
STAP
DBSA
AfDB
TTF
TMSA
HDM4
IRI
TTA
EU-EDF
Common Market for Eastern and Southern Africa
East Africa Community
Southern Africa Development Community
The United Kingdom’s Department for International Development
Regional Economic Community
North-South Corridor
Geo-Information System
Infrastructure Consortium for Africa
NEPAD Short Term Action Programme
Development Bank of Southern Africa
Africa Development Bank
Tripartite Task Force
TradeMark Southern Africa
Highway Design and Management Software Version 4
International Roughness Index
Tripartite Trust Account
European Development Fund of the European Union
TMSA Case Study Series | North-South Corridor Roads
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The North-South Corridor (NSC) Programme is a Pilot Aid for Trade Programme that has enabled the Regional Economic Communities (RECs) of COMESA, EAC and SADC, their Member States and the International
Community to implement an economic corridor-based approach to reducing costs of cross-border trade in
Sub-Saharan Africa. It seeks to enable producers and traders to be more competitive, thereby creating higher
levels of economic growth, employment creation and reduce poverty. The project will also focus on taking the
necessary steps to ensure that adequate power supply is made available to support the growing demand from
industrial, commercial and domestic consumers.
The road sector component of the North-South Corridor programme aims to reduce the costs of doing business in the Eastern and Southern Africa region by addressing, as a comprehensive programme, road infrastructure along the Corridor.
The North-South Corridor Conference, held in April 2009 was an important milestone to highlight infrastructure requirements along the Corridor. Since April 2009. the total network of 8,599km of NSC roads, across 7
countries have either been upgraded, are in design or are at planning stages.
A progress review of road network conditions was carried out by TradeMark Southern Africa during 2009/10.
This review found that:
• 2,403 km of roads are in good condition and require nothing more than routine maintenance;
• 5156 km of roads will be in good condition for the next 2 – 5 years, but will require upgrading or rehabilitation design to start in the short to medium term; and
• 1041 km of roads require immediate rehabilitation or upgrading.
The main objectives of the road sector component of the North-South Corridor programme has been to assess
the condition of the road surface that makes up the NSC; to determine the frequency and cost of maintenance;
to put this maintenance and rehabilitation schedule into an order of priority; to plot the roads and the status
of the roads onto a GIS map so that real-time data was available for stakeholders to use; to assist national
road agencies to prepare the necessary tender documents; and to then also assist to secure financing for the
sequenced and prioritised North South Corridor road rehabilitation programme.
Challenges faced include procurement procedures; information flows and the changing responsibilities in
financing the road maintenance.
Some of the main results of the programme include securing financing for the design of the Serenje-Nakonde
road from the European Development Fund; establishment of the Tripartite Trust Account and the successful
use of this to leverage loans to finance the rehabilitation of the region’s road infrastructure; the establishment
of a database of roads that is also presented as a GIS map; the preparation of a list of priority projects and
the securing of finances to implement some of these projects; the establishment of the Project Preparation
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TMSA Case Study Series | North-South Corridor Roads
There have been a number of initiatives taken on the development of infrastructure as a means to assist Africa
to reduce the costs of intra-regional trade and trade with the rest of the world. These initiatives take a number
of forms, such as the Infrastructure Consortium for Africa (ICA) and the Africa Infrastructure Fund, which act
as mechanisms which broker donor and private sector financing of infrastructure projects and programmes in
Africa. Other initiatives include the NEPAD Short Term Action Programme (STAP), with the African Development Bank acting as the lead agency, the SADC sub-regional infrastructure facility (DBSA-AfDB) and the multi
donor, multi-agency Institutional Support for East Africa Trade and Transport Facilitation Project.
The North-South Corridor is part of this set of initiatives to reduce the costs of doing business in the Eastern
and Southern Africa region so as to make the region more competitive globally. It is a flagship programme of
the COMESA-EAC-SADC Tripartite which is itself a coordination mechanism for the three regional organisations that tries to ensure that the REC programmes do not put Member/Partner States into contradictory or
compromised positions as a result of implementing integration programmes.
The Tripartite has a Task Force (TTF) comprising the three heads of the Secretariats of COMESA, EAC and
SADC and the TTF has sub-committees in trade (policy and facilitation) and trade infrastructure along corridors
to develop common programmes in these sectors. The North South Corridor infrastructure programmes, including the roads programme, is managed by the Tripartite Infrastructure Sub-Committee and is back-stopped
(as are all Tripartite programmes) by the DFID-financed TradeMark Southern Africa (TMSA) programme.
The Tripartite saw the need to reduce costs of cross-border trade as crucial to economic growth and to do this
it was appropriate to reduce transport costs along a whole corridor in a sequential fashion. One of the concerns of the Tripartite is that, traditionally, development and rehabilitation of surface transport infrastructure
has been done in isolation, meaning that it is possible for a section of road to be repaired whilst the section
before and after the repaired section is not repaired; no account is taken of transport facilitation measures
and no account is taken of other modes of transport. Therefore, the North-South Corridor programme has a
number of projects that are inter-related but which address, road infrastructure, road transport facilitation, rail
infrastructure, reducing time taken to cross border posts, port infrastructure and, in the future, energy and ICT
infrastructure.
The main objectives of the road component of the North-South Corridor programme are:
• to assess the condition of the road surface that makes up the NSC;
• to determine the frequency and cost of maintenance (including backlog maintenance) and/or rehabilitation to maintain an international roughness index (IRI) of 3-4 and to do this by using version 4 of the Highway Development and Management Model (HDM4);
• to put this maintenance and rehabilitation schedule into an order of priority;
• to plot the roads and the status of the roads onto a GIS map so that real-time data was available for
stakeholders to use; and
• to assist national road agencies to prepare the necessary tender documents and to then also assist to
secure financing for the sequenced and prioritised North-South Corridor road rehabilitation programme,
TMSA Case Study Series | North-South Corridor Roads
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In the margins of the High Level Conference on the North-South Corridor held in Lusaka in April 2009 the
“Road Agencies Working Group” (sometimes referred to as the “HDM4 Champions Group”) held a meeting at
which it was agreed, amongst other things, that it is in the best interests of all countries serviced by the NorthSouth Corridor that:
• the roads that comprise the North-South Corridor should be considered as one entity with regard to any
strategic analysis;
• future analysis should continue to use HDM4; and
• the HDM-4 Champions group should continue to operate, with information being transferred at least once
a year such that the analysis can be updated on an annual basis, with all countries submitting a summary
of the funding secured for each year as well as funding gaps for Feasibility and Design; Construction and
Supervision using a standard form.
Implementation of the NSC roads programme has been the responsibility of the Tripartite Infrastructure SubCommittee and the HDM4 Champions Group, working with TradeMark Southern Africa.
The first task in the implementation of the NSC roads programme was to drive the NSC road network and
to collect IRI data1 (visually) and to supplement this with information that was available from National Road
Agencies and Departments of Roads. This allowed TMSA to categorise the NSC road network in terms of
whether construction intervention is required within 2 years (coded red), 2-5 years (coded orange) and greater
than 5 years (coded green). This information was plotted onto a GIS map (www.trademarksa.org) and the
three categories are shown in different colours (see Map 1).
The next stage was to contract the University of Birmingham to use HDM4 to estimate the costs of rehabilitation and maintenance of the entire NSC road network and to keep the road network with an IRI of less than 4
for the next 20 years. HDM-4 was chosen as the system to adopt as most of the road departments or agencies
along the North South Corridor were using HDM4 as part of their own maintenance strategy, had attended
courses at Birmingham and were familiar with what inputs were required. Input data was received from the
countries themselves and where data did not exist or where data was missing the ‘visual’ data was used.
The HDM4 analysis was done for both the entire road network and for the road network excluding the South
African component of the NSC road network. One of the major conclusions from the Birmingham University
report (“Economic Benefits of an Efficient North-South Corridor”) is as follows:
The long-term average road condition, over the 20-year analysis period, would be 3.6 IRI. The total financial investment required for road network improvement is US$ 7.4 billion of which US$ 5 billion is capital
investment and US$ 2.4 billion is recurrent costs. The total financial requirement for border post improvement is US$ 0.7 billion of which US$ 0.3 billion is capital investment and US$ 0.4 billion is recurrent costs.
The annualised financial requirement to improve the road network is approximately US$ 42,900 per km.
The economic return on this investment (i.e. the NPV) would be US$ 13.9 billion. The benefit/capital cost
ratio associated with this investment is 2.8.
The initial (first year) costs of maintenance and rehabilitation are high (at about US$1.25 billion) as significant
levels of backlog rehabilitation and maintenance need to be done. This does not imply negligence on behalf
of the recently-established roads agencies. It simply reflects the fact that costs of road rehabilitation cannot
be met by users alone in conditions where road distances and countries along the NSC are vast. Levels of
1 The IRI categories used were:
GOOD – the road user has an excellent impression of ride quality and is able to drive at normal speeds with no undue perception of
the road roughness. (Estimated IRI<3m/km)
FAIR – some roughness is evident causing limited driver discomfort at normal driving speeds. (Estimated IRI 3-5m/km)
POOR – the roughness is such that the road user will slow from normal driving speeds to avoid undue discomfort. (Estimated
IRI>5m/km)
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TMSA Case Study Series | North-South Corridor Roads
Map 1: The NSC Road Network
TMSA categorised the NSC road
network in terms of whether construction intervention is required
within 2 years
(coded red), 2-5 years (coded orange) and greater than 5 years
(coded green).
SOURCE: www.tmsagis.co.za
(million US$)
Investments Costs
1200
1000
800
600
Figure 1: Annual Investment
Profile for NSC
400
200
1
2
3
4
5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20
To maintain the entire NSC (excluding South African roads) to a
“good” standard and assuming a
reduction in border post delays of
50%.
Years
TMSA Case Study Series | North-South Corridor Roads
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traffic are not yet at volumes where the costs of road rehabilitation can be met only from road user charges
and fuel levies. However, once the initial backlog is addressed, costs of annual maintenance fall significantly
for the next 20 years. In year 2 maintenance costs of the entire network (excluding RSA roads) is estimated to
be about US$75 million. As additional periodic maintenance needs to be done the costs rise, so that by year
6 maintenance costs will be about US$600m, falling to about US$450m in year 7 (See Figure 1).
The physical works that will be required depends on each section but includes application of a cape seal, widening of the road (where necessary to take the road to a minimum lane width of 3.4m2 along its entire length),
re-gravelling and upgrading gravel roads to a paved road (in the DR Congo), applying a 50mm (or 80mm)
overlay and reconstruction.
In order to maximise the use of these funds a financial and economic analysis was carried out (again by Birmingham University) that gave recommendations for maintenance interventions based on present and future
traffic. Options ranged from traditional methods such as force account and single one-off maintenance contracts to full tolling (See Annex 1 for a fuller description of the various PPP options).
Table 1: List of Road Projects
List of approved priority projects on the North-South Corridor
Country
Section
Description
Botswana
Nata-Kazangula
The Government of Botswana is currently financing the reconstruction of
the worst sections.
DR Congo
Kasumbalesa-Kolwezi
The Director of Roads has stated that this section is being upgraded by the
government.
Malawi
Nsipe-Zalewa
Bwendgu-Chiweta
Karonga-Songwe
KIA TO-Bunda TO
Kasunga-KIA TO
Malawi has requested assistance with the construction of all of these road
sections. The Tripartite has been informed that all tender documents have
been completed. However, the Malawian Authorities have yet to submit
these documents to the Tripartite for evaluation.
Tanzania
Tunduma-Dar
Sections of this road are being rehabilitated from Danida and the World
Bank.
Zambia
Serenje-Nakonde
Lusaka-Chirundu
The tender documents for the design for the Serenje-Nakonde road (613
km) have been completed in 3 sections and will be financed by the EDF-10
Regiona Fund with COMESA as the Contracting Authority.
Zimbabwe
Beitbridge-V.Falls
Harare-Nyamapanda
Zimbabwe have requested a design for the widening of these road sections. Contract awarded to prepare the ToRs for the design consultants.
Following on from the High Level North-South Conference held in April 2009 in Lusaka, Zambia, where donors
pledged US$1.2 billion3 for projects specifically related to the North-South Corridor, NSC countries were invited to identify funding gaps in their own national budgets and to nominate roads on the North-South Corridor
that required intervention. This process culminated in a Tripartite meeting held in June 2010 attended by the
CEOs or Directors of Roads of all countries on the North-South corridor. At this meeting 19 road sections were
identified and approved by the Tripartite Task Force as shown in Table 1.
2 Whenever a rehabilitation or periodic maintenance intervention is required the lane widths should be taken to a minimum of 3.4m
and preferably 3.65m.
3 Pledges made at the NSC High Level Conference made specifically for NSC Projects:
World Bank – US$500 million
AfDB – US$380 million
UK – £100 million (£67m capital development)
EU (EDF) – €115 million (€60m from EDF10 RIP)
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TMSA Case Study Series | North-South Corridor Roads
TMSA, working with the TTF Infrastructure Sub-Committee and the Roads Departments or Agencies did an
assessment of the status of preparation of the projects in terms of whether or not they were ready for financing. Some of the projects have been designed and tender documents have been prepared. These projects
were presented first to the Tripartite Task Force for their approval and then to the Investment Committee of the
Tripartite Trust Account (See Annex 2 for a description of the Tripartite Trust Account) for consideration. The
Investment Committee approved all of the projects submitted by the Tripartite Task Force. The Fund Manager
(which is the Development Bank of Southern Africa) is now assessing what level of financing should come
through the Tripartite Trust Account with the balance of funding coming from loan finance.
It should also be noted that the national roads departments and agencies continue to be responsible for the
region’s trunk roads, including the North-South Corridor. They also receive considerable financial and technical support in maintaining the road network from other donors and International Financing Institutions. These
contributions are reflected in the TTF and TMSA roads database when information is available on these interventions.
Related to the maintenance of the North-South Corridor road network is the issue of approved maximums
on axle loads and Gross Vehicle Mass (GVM). There has been recent controversy on the regional standard
of a 56 tonne GVM for vehicles with seven axles and the use of a truck-trailer combination referred to as an
interlink. With a GVM of 56 tonnes and the use of interlinks a transporter can load about 32 tonnes of goods
onto his truck. If the maximum GVM is reduced from 56 tonnes to 48 tonnes the weight of the unloaded truck
remains the same (at about 24 tonnes) so the reduction in the weight of the loaded truck of 8 tonnes is in the
payload. This means that the payload will be reduced by 25 per cent and, as the operating costs remain the
same, the costs of transport per tonne/kilometre will increase by about 25 per cent. If one country along the
North-South Corridor changes the regulations on numbers of axles allowed on a truck-trailer combination or
changes the allowed GVM, then all exporters and importers and so all consumers along the route (even in
countries where the axle regulations have not changed) suffer the consequences of higher transport prices.
The economic consequences of arbitrary national decisions on trade facilitation measures can be very high
and can make industries in neighbouring countries uncompetitive, meaning closing down of industry, losses of
jobs and higher levels of poverty. Therefore, if there is to be a change in regulation on axle loads, GVM or axle
combinations, this change should take account of all the scientific, technical and economic data necessary to
show that the economic costs of higher GVMs and various axle combinations (in terms of road safety and the
damage being done to the road pavement) are higher that the economic costs (in terms of the effects of the
higher costs of imported and exported goods on the regional economy).
To assist to answer these questions, TMSA, acting on behalf of the TTF Infrastructure Committee, commissioned the Centre for Scientific and Industrial Research (CSIR) in South Africa, to analyse eleven vehicle
combinations and five pavement structures to determine the road wear caused by different vehicle combinations. The graph at Figure 2 (see page 10) shows the road wear caused by the various vehicle combinations
to transport one tonne of payload for one km. The values in the graph are in US cents and are the average per
vehicle over the five pavements and for wet and dry climatic conditions.
The graph clearly illustrates that the longer vehicles are more payload effective and also confirm that it is a
misconception that 56-tonne interlinks do more road damage than 56-ton truck and trailer combinations.
The main challenges that have been encountered in successfully implementing and monitoring the NorthSouth Corridor road component have been:
Procurement: Although the North-South Corridor road network is a regional road network the roads “belong”
to the country they pass through and any work done on these roads follow national procurement procedures.
If a road maintenance contract is to be implemented on one section of road that is in two different countries
TMSA Case Study Series | North-South Corridor Roads
9
8
0.73
0.84
6
0.91
Vehicle Type
7
4
0.92
5
0.93
1
1.00
2
1.03
1.09
3
1.26
8A
2.22
2A
2.89
4A
0.50
1.00
1.50
2.00
2.50
3.00
Road Wear
(U$ cent per ton km)
Figure 2: Road Wear | Road wear caused by various combinations of vehicles on road pavements
NOTE: All axles, other than steering axles, are fitted with dual tyres, except for tridem axles indicated with red ovals for types 4A, 2A
and 8A
the current procedure is that the works should be implemented through two contracts using two different
procurement procedures. This causes problems in terms of implementation4 and on the North-South Corridor
every effort is being made to ensure that one set of procurement procedures are used, with these procurement procedures being based on international best practices. This is not always easy as it is usually the case
that countries have legal requirements that preclude the use of procurement procedures not endorsed by the
statutory bodies in charge of procurement.
Information flows: It has been a challenge to secure, in a timely fashion and at the level of detail necessary,
information required to effectively monitor the North-South Road network. The information required includes
maintenance schedules, activities (and planned activities of donors and IFIs in the road sector) and planned
changes to the legal and regulatory environment. As regards maintenance schedules, what is planned is
rarely implemented, partly because of budget constraints and shifting priorities. It is also extremely difficult to
obtain information on planned donor and IFI interventions partly because these interventions may be across a
number of activities (such as construction, training, supervision, technical assistance, etc) and it is difficult to
disaggregate the finances and partly because the funders may not know the detail (such as when the funds
provided are through sectoral budget support).
Changing Responsibilities for Financing the Road Sector: When the North-South Corridor received its
pledges in April 2009 the only roads that were tolled (and the only planned toll roads) were in South Africa.
Within a space of less than two years NSC countries have moved to a situation where it appears that govern4 See, for example, the experiences of the reconstruction and rehabilitation of the Arusha–Namanga–Athi River Road between
Kenya and Tanzania. This road, although one regional road, does not have one contractor and was procured using national procurement procedures according to which country the road section was in. This has led to a number of problems, the first one being
delays in start-up with design and financing arrangements completed in September 2006 but construction only starting in November
2007 (for the 135km Athi River-Namanga section in Kenya) and September 2008 (for the 105km Arusha-Namanga Section in Tanzania) and with construction yet to be completed as at the first quarter of 2011.
10 TMSA Case Study Series | North-South Corridor Roads
ments seem to want to toll most of the NSC road network. This has introduced a number of challenges that
were not present at the beginning of the programme in terms of the overall funding requirements of the maintenance of the road network and especially the funding requirements from the public sector. There is also no
clarity at present on what toll models are being used, how the concession agreements will be structured and
what the schedule for concessioning roads are.
The success of the NSC road sector component has been dependent on:
• the decision of COMESA, EAC and SADC to form the Tripartite and the political support obtained from the
Member States through the Tripartite Summit and the NSC High Level Conference;
• the political support provided through NEPAD and the decision of NEPAD Heads of States to champion
infrastructure on the North South Corridor at the Head of State level;
• the strong support from developed country partners and IFIs manifested through the level of commitment
shown by the pledges made at the NSC High Level conference.
• the coordination role played by DFID in terms of coordinating donor support.
• the support and level of participation of the Road Agencies and Departments, their willingness to share
information and their enthusiasm to make the NSC road programme work;
• the fact that Road Agencies and Departments had access to data required for the running of HDM4 which
is relatively data-intensive; and
• the pro-active involvement of the Tripartite Infrastructure Sub-Committee.
The main results achieved to-date are:
Priority Project List:
A list of priority projects has been compiled and some of the projects have already been financed, with others
being prepared for financing.
Serenje-Nakonde Road:
The Tripartite has secured a grant of about €6m from the European Development Fund to finance the design
of the Serenje-Nakonde road and is in negotiations with the Development Bank of Southern Africa to use the
Tripartite Trust Account grant funds to leverage a loan to finance construction.
TMSA Case Study Series | North-South Corridor Roads 11
COMESA Project Preparation & Implementation Unit:
The Project Preparation and Implementation Unit is being established in COMESA which will assist to harmonise regional master-plans, assist with the preparation of priority projects and maintain the projects database
for the Tripartite; prepare Project Information Memoranda for those projects to be taken to investors; prepare
tender documents; and manage the implementation of small projects that will be implemented directly by the
Tripartite and TMSA.
North South Corridor Database:
A database of roads on the North-South Corridor, giving details of each road section, has been established
and is constantly updated. It is also presented in the form of an interactive GIS map (see www.trademarksa.
org).
SADC Harmonisation:
Work has started on harmonising the regional infrastructure master plans by working with SADC on their master plan and integrating aspects of the COMESA Priority Investment Plan and the EAC’s infrastructure master
plan.
Lusaka-Chirundu Road Section 4:
The Tripartite has also secured a grant from the Tripartite Trust Account to re-construct section 4 (bottom of
escarpment to Chirundu) of the Lusaka-Chirundu road. Section 3 (escarpment) have already been up-graded
and sections 1 and 2 (Lusaka-Kafue and Kafue to the top of the escarpment) are being financed by the World
Bank. In addition to the grant to be used to leverage the bulk of the finances required to construct section 4
from the Development Bank of Southern Africa and additional grant will be used to construct the Kafue weighbridge.
In conclusion, the road sector component of the North-South Corridor has shown that it is possible to have
a regional programme that successfully reduces the cost of cross border trade and so makes a region more
competitive as long as there are strong regional institutions to drive the process and there is both technical
and financial support to support the lead of the regional institutions.
12 TMSA Case Study Series | North-South Corridor Roads
The Tripartite continues to collect data on the roads and has recently finalised a study, done by the University
of Birmingham, on methods that can be used to finance each road section of the North-South Corridor. The
methods that were considered were the following:
i) Traditional Contracts:
These types of contract are normally one-off. For smaller routine works the national Road Agency tends to
specify and supervise the works direct and for the larger periodic works, a consultant is often used for the
supervision and design.
ii) Framework Contracts:
Framework contracts are where the client establishes a pre-approved set of contractors working for agreed
rates for various items independent of work quantities required. There may be agreed minimum or maximum
volumes of work or none at all. Frameworks can be applied to supply, works, and professional service activities, but they are best suited to orders of a similar nature, where demand is likely to materialise in a regular or
programmed manner over an extended period. Frameworks enable purchasers to place orders, or “call-off”
services, with or without secondary competition—substantially speeding up procurement. The framework lasts
for a fixed period of time, normally from one to five years. These contracts can be applied to short stretches
of road or entire networks. Generally, a consultant is also procured to supervise a framework contract. The
advantage of these contracts is that the need for frequent tendering is removed and hence administration
costs are removed.
iii) Integrated Supply Chain:
This type of contract extends the use of managing agent and framework contracts to incorporate long-term
strategic alliances with the suppliers of material and labour. The motivation for using ISC contracts is that
approximately 80 percent of the cost of any manufactured product is in the supplier’s labour and materials.
Therefore, key suppliers should be selected for their ability to deliver excellent work at a competitive cost.
The supply chain must be capable of contributing new ideas, products, and processes. The suppliers should
also be managed so that any waste and inefficiency are continuously identified and driven out. This option is
considered suitable for the East and Southern Africa region (outside S.A.) mainly because of the neglect of
periodic maintenance and the lack of competitiveness of domestic contracting industry. Foreign contractors
are dominating the industry and prices are becoming very high. Historically, resealing and overlays, have been
neglected by Road Agencies and hence a good local capacity to carry out such works has not emerged. There
is a strong need to develop domestic capability for the medium to large contracts to avoid the risk of cartel
behaviour by a few dominant contractors. This capacity can only be developed if a market for local contracting
services is provided. ISC management would provide a good mechanism to provide such a market. A Managing Agent would manage supply contracts for plant, materials and labour and be responsible for producing
the works using these resources. Local firms could supply all the labour, most of the materials and some of
the plant. The Managing Agent would be paid a fee to organise the works, with a bonus. The bonus would
be payable upon achievement of targets in terms of quality, quantity and utilisation of domestic suppliers. An
independent assessor would evaluate the bonus.
iv) Fee for Service Contracts:
Over the last 20 years public-private partnerships (PPPs) have been developed, where the (tolled) road is operated under a concession agreement. The concessionaire collects as much revenue as possible from users,
while the balance of the revenues comes from government, either in the form of an up-front payment, or as
TMSA Case Study Series | North-South Corridor Roads 13
a recurrent “shadow toll”. Many of these concessions apply to existing roads where the toll revenue only has
to cover the costs of operation and maintenance. This has enabled many more roads to be tolled and hence
more revenues to be collected directly from users. In the early days of private finance under this mode, the
main mechanism for the fee payment was a shadow toll. However, this tended to transfer a large risk burden
to the client (accurate prediction of traffic levels is difficult) and the only incentive was to get traffic through and
not necessarily provide a road in good condition. More recently Active Management Payment Mechanisms
(AMPM) has been introduced. Typically, companies tendering bid a fixed amount of money for each year of
the commission. The amount bid is divided up into weekly amounts and further divided for each carriageway
section (approx 2km in length) and each hour of the day. The amount of weekly payment allocated to each
section and each hour will be directly proportional to the expected level of traffic flow based on a rolling average of the number of vehicle kilometres travelled on each section of road for the corresponding hour of the
day for the previous four weeks. Full payment for each section and each hour will be made if the road section
satisfies minimum road condition criteria, and the target average speed for the road section is achieved. Failure to meet the required minimum road section performance criteria will result in no payment being made for
that road section for that hour. When the average speed falls below the target average speed, payments are
reduced. It is likely that most companies with the finance and capability to operate one of these concessions
would be foreign. This option may be of particular interest to the Chinese contractors operating in the region
since they may have access to low interest Chinese Government loans that could be used to pre-finance the
works.
v) Toll Road Concessions:
Tolls can only be economically collected on roads carrying relatively high volumes of traffic. The broad rule
of thumb is that, with a 20 year cost recovery period and a toll of $0.03 to $0.06 per vehicle kilometre for light
vehicles, there should be least 10,000 to 15,000 vehicles per day (vpd) to cover all costs. It is often possible
to cover rehabilitation, operation and maintenance costs with only 6,500 vpd and just maintenance costs with
only 3,500 vpd and just toll collection costs with only with 1,500 vpd. Since such volumes of traffic only occur on limited parts of the road network – typically on no more than 5–10% of the national road network and
1-2% of the total road network – this means that tolling can only meet a small part of the road sector’s overall
financing needs. However, since expressways are the busiest and most expensive sections of road to build
and maintain, tolling can make a valuable contribution to the financing of the main trunk road network. When
the volume of traffic, combined with the agreed (often regulated) toll, does not generate sufficient revenues to
cover all costs, governments have to realistically accept shared costs.
The South African Roads Board developed a fairly innovative way of dealing with their early toll roads. Many
of them did not carry sufficient traffic to make them financially viable so they developed the “loans supportable
by revenue” (LSR) approach to toll road financing. The LRS is determined by calculating the project’s present
worth over a period of 30 years at a 4 percent discount rate. This determines the size of the loan that could
be repaid from toll revenues over a 30-year period at a borrowing rate of 4 per cent over the inflation rate.
The balance of the capital is provided in the form of national Road Fund loans which bear no interest until the
toll road has met its commercial money market obligations. Since traffic is growing and tolls are indexed for
inflation, toll income grows faster than operating costs. Although the toll road starts off making losses, they
are expected to break even after seven to nine year, pay off the accumulated deficit during the next seven to
nine years and then pay off the principle amount of the loan and make profits during the remaining twelve to
sixteen years of the project’s life.
There are three basic options for toll collection: (i) manual tolling; (ii) mixed tolling - some manual tolling,
some electronic; and (iii) electronic - where there is no manual toll collection. The most common method is
still manual. The drawbacks are that it is a slow system and therefore requires more toll booths/lanes than any
other to achieve the same traffic flow. Set up costs may also be high if land acquisition is costly. There are few
all-electronic systems in operation including Singapore’s ‘ERT’ area pricing system; Dubai’s Salik toll on major
routes; Melbourne’s electronic system (that requires all users to carry tags in their vehicles and to pass the
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toll gates at a slow speed, but without stopping); and London’s congestion charge that relies on number plate
recognition by cameras around the edge of the controlled zone.
An economic study, using the HDM4 tool, was carried out for various road sections with a number of treatments (such as overlay or reseal) and with a financial and economic cost of that activity. Two types of analysis
of each of the road sections have been carried out:
Type 1:
Financial analysis that takes into account the revenues that might be generated on a toll of $0.03 per kilometre
for a car, with multiples applied for larger vehicles (up to 3 times for heavy goods vehicles) and assuming that
there is full collection of tolls from all road users. An annual income over costs was then calculated for each
section, based on the revenue calculations. Where the income over cost is greater than 200 percent the section is considered tollable. For sections between 100 percent and 200 percent subsidies, or minimum payment
guarantees, are recommended. For sections where the income over cost is less than 100% solutions other
than tolls are recommended.
Type 2:
A multi-criteria analysis that takes into account various criteria that may affect the implementation of a PPP
option (such as an index measuring “the ease of doing business”, national road funding levels, the NPV/cost
of the road section, etc) is used to calculate a PPP index. The higher the PPP index the more suitable the
road section is to a PPP solution. The model is then calibrated against the financial assessment to determine
appropriate thresholds from one solution to the next.
TMSA Case Study Series | North-South Corridor Roads 15
The Tripartite, working together with the UK’s Department for International Development (DFID) and the Development Bank of Southern Africa (DBSA) has established a Tripartite Trust Account as was agreed should
happen at the North-South Corridor High Level Conference that was held in April 2009 in Lusaka. The request
from the Tripartite was for DBSA to establish and manage a bank account on their behalf (the ‘Tripartite Trust
Account’ or ‘TTA’) that would provide targeted funding aimed at making up the deficit in regional infrastructure
in particular the Tripartite Aid-for-Trade pilot programme, the North South Corridor, by creating a catalytic
grant fund. The Tripartite Trust Account is aimed at leveraging funds from commercial and quasi commercial
sources.
The DBSA and the UK Government, acting through DFID, are the founding donors of the TTA (and the DBSA
is also the TTA manager) but the Account is open to any donor that wants to contribute to the TTA.
The main features of the TTA Agreement which was signed by all parties in November/December 2009 are
as follows:
• The TTA is viewed by both donors and the Tripartite as a catalytic infrastructure investment grant fund to
leverage commercial and quasi commercial investments to supplement member country public funds.
• The TTA is open to all donors and each donor or donor group is free to specify the conditions in which this
donation can be used in a separate agreement with the DBSA as TTA Manager.
• Donor contributions of at least Twenty Million Euro (€20,000,000) or its equivalent will secure membership
of the Investment Committee, although the TTA will be maintained in US Dollars.
• Participating governments should take ownership of projects and all projects should be justified on economic grounds and conform to the selection criteria specified in the TTA Agreement.
• In all projects co-funding by private entities and public-private-partnerships (PPP’s) shall be promoted
where feasible.
• The Investment Committee shall comprise 1 representative of each donor contributing €20m or more; 3
representatives of the Tripartite (COMESA, EAC and SADC); 1 representative of the Tripartite Secretariat
and 3 independent representatives. The TTA manager will be an observer.
• The Investment Committee will oversee and supervise the TTA Manager, shall report to the Tripartite Task
Force and be subject to the strategic and policy guidance of the Tripartite Task Force.
• The TTA Manager will be responsible for establishing a separate account, ring-fenced from its own balance sheet and operations, and thereafter to administer the account according to the provisions of the TTA
Agreement.
• The TTA Manager shall be responsible for the day to day executive functions associated with coordination, management, implementation and reporting to the Investment Committee. The functions to be performed by the TTA Manager to co-ordinate and manage the account are divided into financial management
functions and appraisal of proposals, project negotiation and implementation supervision and monitoring.
• The TTA Manager shall also be responsible for the treasury function, including cash flow management,
and shall prudently invest surplus funds, while obtaining an acceptable return on such investment.
The Operational Procedures are as follows:
i) Identification and project preparation will be done by third parties wishing to apply to the Tripartite Trust Account for financial support.
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ii) On receipt of an application it shall be registered and notified to the Investment Committee at the next
meeting of the Investment Committee.
iii) The TTA Manager will undertake a preliminary appraisal to assess whether the project proposal meets the
eligibility criteria set out in this agreement, the conditions of use set by the relevant donor(s) and approved by
the Investment Committee; and the project appears to have economic and social benefit. The TTA Manager
shall, within four (4) weeks of receipt of the application, submit its recommendation on the project proposal to
the Investment Committee for an in principle decision.
iv) On acceptance of the project in principle by the Investment Committee a full appraisal shall be undertaken, covering economic, financial, social, technical, environmental legal and institutional aspects.
v) After approval by the Investment Committee negotiations will take place with the project sponsor/grantee
and a contract or contracts concluded allowing the project to move to implementation phase.
vi) During the implementation period the project will be supervised and monitored and regular progress reports submitted to the Investment Committee.
vii) All disbursement towards approved projects shall be:
a. Direct grants to a project having substantial economic and social benefits;
b. Capital grants or any other form of grant approved by the Investment Committee to accommodate a
specific project requirements; or
c. As a lump sum when funding requirements are met or in terms of disbursement schedule decisions by
the Investment Committee.
viii) After completion of the project, performance will be monitored for a year and the file closed by the acceptance of a completion report by the Investment Committee. This report will indicate the economic, social and
environmental outcomes or impact as well as detailing financial, technical and management performance.
ix) The maximum support for any one project and/or sector and/or country shall be determined by the Investment Committee.
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