So is there any chance for us to smell the brand new quality asphalt on Ukrainian roads any time soon? The simple answer is yes, but those should be concrete roads instead.
It is definitely the right moment in time to deal with roads - situation has never been that critical before. Out of 170, 000 kilometers of state, regional and local roads, 97 percenter are officially recognized by the state road agency Ukravtodor to be in an unacceptable condition now. The death toll from road injuries is four times higher than in Europe. Yet the average speed of trucks on a highway is 30 kilometers per hour vs. 60 kilomters per hour in Europe, which leads to excessive costs of transportation. This sector was neglected and underfunded for years, and we need to turn it around now.
We know what needs to be done. Both history and economists teach us that massive road construction projects can become a powerful locomotive of economic growth and deliver $1.6 in return for each $1 invested in roads over the period of 5-10 years. This is on top of the Hr 50 billion annually being wasted at the moment in economical losses of the business and population.
What needs to be done? First, we need to go through reforms in the road sector:
Increase efficiency and decentralize the management system;
Increase funding and ensure it is stable and spent properly;
Replace the monopoly of state road agency Ukravtodor with competitive market for road construction, repairs and maintenance services; and
Ensure proper independent quality control and civil oversight
The first step would be to decentralize the road sector. We need to let local authorities and territorial communities to manage and prioritize construction and maintenance of local roads. This reform is under way already as the government is planning to transfer 120,000 kilometers of local roads to the local authorities along with the proper funding. At the same time, Ukravtodor subsidiaries, which were responsible for regional services (oblavtodors) will be split into 25 entities and also transferred to report to the local authorities.
As a second step, local authorities would have to privatize and/or reorganize oblavtodor(s) operations in order to create competitive road construction and maintenance market locally. Government will implement the same regarding 52,000 kilometers of state and regional roads.
It is very important to support those reforms with proper financing: stable, sufficient and spent efficiently. Ukraine is financing roads from the same source as other countries across the world: excise for the fuel. At the moment we charge 100 euros per ton of imported diesel and 200 euros for petrol. This results in $1.5 billion of annual income to the state budget. But for the previous 10 years, only 20-30 percent of those funds were spent on roads, while the rest was redirected to other government spending. Also funding of the road sector was very hectic, which did not allow proper planning and prevented private investments from entering this sector.
As a result, now we need at least $3 billion annually over the next 10 years in order to fix all 52,000 kilometers of the state and regional roads. If we add local and municipal roads on to this, we are talking about a $50 billion to $100 billion effort here.
Double excise tax
Where do we get the money?
We would need to double the fuel excise – most countries across Europe, as well as Russia and Belarus have twice-higher level of excise and road funding available per kilometer. Unfortunately, roads are expensive and it is not possible to build those without substantial capital investment. But it pays out well!
Other sources of financing, which have huge untapped potential in Ukraine, are state-private partnership mechanisms as well as concessions, which would attract substantial amount of private investments into this sector. Government has to remove only one roadblock here: the current one-year long budget cycle does not allow Ukravtodor to sign 5-7 year maintenance contracts, which in turn does not allow vendors to invest into road construction and maintenance equipment.
And last but not the least, toll roads for heavyweight trucks are essential, since 99 percent of road damage comes from trucks. A number of countries which has implemented tolling systems and charge truck owners a fee per kilometer driven. The revenue is dedicated to the road rehabilitation efforts.
One of the critical tasks at the moment is to prevent roads from being destroyed by trucks carrying excessive loads, often 2-3 times more than allowed in Ukraine. There is no point in fixing roads and building new ones if those get destroyed over 2-3 years period, while the typical road lifetime should be 8-10 years instead. Current road inspection is completely corrupt and is going through reform as we speak. Yet, it is impossible to solve this issue without electronic control systems (weight in motion) being deployed. We need to eliminate physical contact between inspector and the driver, and enforce fines for the overweight electronically.
There is also no point in building asphalt roads in Ukraine any more.
With cement overproduction, concrete roads would cost less and live for 30 years without repairs, which is four times longer!
At the moment concrete highways constitute 1 percent of our roads while developed countries have 20-30 percent of those on average. We simply need to build more of those.
It is that simple
Reform Ukravtodor and the road sector to ensure competitiveness and efficiency, then pour money into road construction, and enjoy high employment, happy drivers and tremendous gross domestic product growth!
Roman Khmil is an adviser to the Minister of Infrastructure and chairman of the board at the nongovernmental organization My Road. He is currently going though the bureaucratic process of being appointed head of roads and transportation department at the Ministry for Infrastructure.