Is a Further Increase in Fuel Levy in Kenya Justified?
Road transport is the predominant transportation mode in Kenya, contributing to about 9% of the GDP. Increased expenditure has seen road assets become a significant portion of public investments that must be preserved. In Kenya, funds for road maintenance are primarily derived from fuel levy, which is charged per liter of petroleum imported. Despite the recent doubling of fuel levy charge, it's still inadequate for the entire network maintenance needs. This has prompted calls for a further increase in fuel levy in line with the government's "user pay" policy, much to motorists' chagrin. This study seeks to assess whether these calls are justified by comparing the benefits of increasing maintenance investment versus the road user cost (RUC) savings.
The study methodology involved undertaking network strategy analysis using the HDM-4 model. The model was used to quantify the optimal network maintenance needs, network performance under different budgets and the impact of increased maintenance funding on RUC.
The study revealed that Kenya needs to double its fuel levy charge from the current $0.18 per liter to meet its entire network maintenance requirements. It also revealed that every dollar invested in road maintenance translates to RUC savings of about $5.53.
Fuel levy charging is, however, under threat as road user charging is becoming "politically unpopular”. Also, vehicle fleets are switching to alternative fuels, and engine efficiencies are improving, leading to declining fuel consumption. For Kenya, this calls for the charging of fuel levy per kilometer travelled instead of per liter of fuel sold.
About the Author:
Mr. Ochola is a professional civil engineer with a decade of experience in transportation planning, policy formulation, feasibility studies, engineering design, contract administration, monitoring and evaluation, and project management. He holds an MSc (Eng) Transport Planning & Engineering from the Institute for Transport Studies, University of Leeds (UK). He is currently a consultant for the World Bank in a study to assess the economic efficiency of long-term road asset management strategies.
Mr. Ochola has successfully delivered an array of multi-disciplinary transport projects covering all the critical project phases from identification, preparation, feasibility, procurement, implementation, and monitoring to closure. He has work experience in consultancy assignments financed by international financing institutions such as the World Bank, the Africa Development Bank (AfDB), Japan International Cooperation Agency (JICA), the French Development Agency (AFD), the Millennium Challenge Corporation (MCC), and the United Nations Office for Project Services (UNOPS).
Mr. Ochola also has international work experience, having undertaken assignments in several countries, including Kenya, Uganda, Tanzania, Rwanda, Liberia, Somaliland, South Sudan, Somalia, United Kingdom, Zambia, Laos, New Zealand, Florida (USA), and Argentina.
What motivates you to address the topic of road funding and financing and what are your ambitions in this topic?
“In most developing countries, expenditure on road maintenance is often below the required optimum maintenance needs, resulting in a maintenance backlog and loss of road assets due to deferred maintenance. Most governments have initiated schemes to have road users pay for road maintenance by implementing "user-pay" strategies to finance their ever-ballooning maintenance needs. Unfortunately, the revenues collected from these schemes are nowhere near enough, mainly due to low-level user charging, given that road user charging is mostly "politically unpopular." In fact, attempts to increase road user charges have often attracted the chagrin of road users leading to the shelving of such plans by those in authority. The findings of this study reaffirm that more expenditure on road maintenance is vital as it reveals that road users bear the cost of poor maintenance directly and should therefore be ready to pay extra for maintenance.”
What are your expectations of the World Meeting? What are you looking forward to most?
“I am looking forward to exchanging ideas with other practitioners involved in road financing. My particular interest at the moment is alternative financing mechanisms in light of changing vehicle fleets and improving engine efficiencies which have seen declining fuel consumption, thereby shrinking fuel levy collections.
I believe that the findings of these types of study should see better packaging of projects, especially by the international financing institutions, to include long-term asset preservation measures as opposed to the current bias towards capital investments only.”