Public private partnerships not required for maintenance of highways: RDA Committee

Sri Lanka’s expressways will generate enough revenue for the Road Development Authority ( RDA) to run, maintain and extend them for the next ten years. They do not require a public private partnership type financial model, a team appointed on the instructions of the Cabinet Committee on Economic Management (CCEM) has said.

The six-member group, comprising senior RDA officials, was set up in response to strong opposition by unions to a Ministry of Highways plan to hand over expressway operation and management to a Chinese company. It has also recommended the setting up of a regulatory and monitoring body for the roads.

The Sunday Times obtained a copy of its report. “The analysis does not warrant going for PPP type financial model,” it concludes. It says, however, that a PPP can be formed for investment in expressways between the RDA and the State- owned Bank of Ceylon ( BOC). This can operate, maintain, improve and extend the roads since the collection of toll income and banking is done by the BOC even now.

The CCEM in September discussed a private public participation model for the existing network - the Southern Expressway from Kottawa to Godagama; the Outer Circular Highway (OCH) from Kottawa to Kerawalapitiya; and the Colombo- Katunayake Expressway. Owing to strong protest against attempts to “privatise the expressways” Prime Minister Ranil Wickremesinghe mandated the appointment of a committee to recommend the “most appropriate model and guidelines” based on financial realities.

The RDA Chairman formed this team and instructed them to study the income generation of expressways since inception; the maintenance cost and other relevant expenditure; the maintenance plan for the next ten years; and adequacy of revenue to meet the above cost.

The committee observed that there have been sudden increases in traffic volume throughout the network with the addition of new sections. Substantial traffic is expected to be generated after 2020 with the addition of further segments. Previous traffic volume predictions were lower than the actual. This could be a result of diversion of vehicles from other routes owing to travel time savings, something that had not earlier been considered.

The RDA’s expressway operation, maintenance and management division (EOM&M) has not carried out any periodic maintenance of the roads since its inception in 2011, the report reveals. A major anticipated expenditure is the addition of toll booths to certain interchanges where serious delays are observed. Peeling asphalt on the carriageway between Kottawa and Dodangoda will need overlay while there is also surface deterioration between Dodangoda to Kurundugahahethekma. Other activities such as repairs to metal underpasses and fences are also expected in the next decade.

The report observes that more than 70 percent of road sections of all expressways in the country are constructed on soft ground. Therefore, long-term performance and behaviour of road pavement and structures are “highly uncertain”. So estimates were prepared on details that were collected from the EOM&M within the available short time period and are based on certain assumptions.

The committee states, however, that the expressways will generate a positive net cash flow every year between 2017 and 2027. A financial analysis based on cost and income projections shows a Rs. 37.2bn positive net present value (NPV), even after considering operation and maintenance as well as the allocation of a substantial sum for future improvements.

NPV is “the difference between the present value of cash inflows and the present value of cash outflows”. It is used in capital budgeting to analyse the profitability of a projected investment or project. Expressway income will be higher if toll fees introduced in 2011 are increased.

“It is, therefore, considered that these EWs [expressways] could be managed by the RDA without much difficulty, while ensuring some future improvements, too,” the committee holds. This requires the timely allocation of funds from toll revenue to attend to minor and major rectification works arising from settlement of pavement and structures as well as damages from flood or abnormal weather conditions.

Certain operation and maintenance functions carried out by EOM&M could be contracted to private parities, the committee observes. A regulating and monitoring body for supervising operation and maintenance must be set up with authority to enforce penalties if these activities are neglected. The EOM&M may receive self-financing status but must function under the Chairman, Director General and Board of Directors of the RDA.

The team was chaired by L. U. D. Athapattu, Director of the Transport Connectivity and Asset Management Project. The other members were S. Opanayake, Director EOM&M; Harold Kannangara, Director Finance; J. A. G. R. Jayalath, Deputy Project Director Central Expressway III; J. N. Lodiwick, Deputy Director EOM& M; and P. H. Gunasinghe, Deputy Director EOM&M.